Would shareholders benefit from this decision

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Analysts expect that International Trading Inc. (ITI) will report earnings of $40 million one year from today. ITI's policy is to pay out 50% of its earnings in dividends (the next dividend is expected in one year). The company has 10 million shares outstanding, a return on equity (ROE) of 9%, and a required rate of return of 12%. Assume that the numbers above are representative of the foreseeable future. Suppose the board of directors decided to change the dividend policy and pay out 100% of ITI's earnings (i.e., ITI would pay out the full $40 million in dividends next year and then maintain this dividend policy forever). Would shareholders benefit from this decision?

Reference no: EM131868707

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