Canadian Tire just announced that it plans to reduce its dividend from $2.50 to $1.50 per share and use the extra funds to expand its operations. Prior to this announcement, Canadian Tire.s dividends were expected to grow at 4% per year and Canadian Tire.s stock was trading at $25.00 per share. With the new expansion, Canadian Tire.s dividends are expected to grow at 8% per year inde.nitely. Assuming that Canadian Tire.s risk is unchanged by the expansion, the value of a share of Canadian Tire after the announcement is approximately: A) $25.00 B) $15.00 C) $31.25 D) $27.50 E) $29.75
Canadian Tire just announced that it plans to reduce its dividend from $2.50 to $1.50 per share and use the extra funds to expand its operations. Prior to this announcement, Canadian Tire.s dividends were expected to grow at 4% per year and Canadian Tire.s stock was trading at $25.00 per share. With the new expansion, Canadian Tire.s dividends are expected to grow at 8% per year inde.nitely. Assuming that Canadian Tire.s risk is unchanged by the expansion, the value of a share of Canadian Tire after the announcement is approximately: A) $25.00 B) $15.00 C) $31.25 D) $27.50 E) $29.75
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 22P
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Question
Canadian Tire just announced that it plans to reduce its dividend from $2.50 to $1.50 per share
and use the extra funds to expand its operations. Prior to this announcement, Canadian Tire.s dividends
were expected to grow at 4% per year and Canadian Tire.s stock was trading at $25.00 per share. With
the new expansion, Canadian Tire.s dividends are expected to grow at 8% per year inde.nitely. Assuming
that Canadian Tire.s risk is unchanged by the expansion, the value of a share of Canadian Tire after the
announcement is approximately:
A) $25.00
B) $15.00
C) $31.25
D) $27.50
E) $29.75
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