Determine the impact on share price for each action

Reference no: EM132071499

Question: REH Corporation's most recent dividend was $1.98 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions.

a. Do nothing, which will leave the key financial variables unchanged.

b. Invest in a new machine that will increase the dividend growth rate to 9% and lower the required return to 14?%.

c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 8% and raise the required return to 16%.

d. Merge with another firm, which will reduce the growth rate to 4% and raise the required return to 18%.

e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 16%.

Reference no: EM132071499

Questions Cloud

State the profitability either in percent or basis points : How profitable is a round trip trade? State the profitability either in percent or basis points.

What percent of the previous rate us the new rate : The reject rate on a given assembly line is given as a number in the units of "faulty devices per 1000 units." This month, the reject rate on the assembly line.

Using the double declining balance method method : What will be the cost of the software after 2 years using the double declining balance method method.

Portfolio using only us t-bills and an index fund : Mr. Miles is a first time investor and wants to build a portfolio using only U.S. T-bills and an index fund that closely tracks the S&P 500 Index.

Determine the impact on share price for each action : REH Corporation's most recent dividend was $1.98 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%.

What is the after-tax cash flow from the salvage value : For your reference, the following are depreciation percentages for a 5-year MACRS property, for years 1 through 6 respectively: 20%, 32%, 19.2%, 11.52%.

Determine the useful life of the assets in years : Determine the useful life of the assets in years, using straight line method.

How investment bankers assist in security issuance : You should understand the primary market issue methods and how investment bankers assist in security issuance.

Liabilities section of the company balance sheet : Also locate information on the types of bonds the company issues. Review the Liabilities section of the company’s Balance Sheet.

User Account

All Pages