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(Common stock valuation) Dubai Metro's stock price was at $100 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price? a. What is the investor's required rate of return for Dubai Metro's stock? % (Round to two decimal places.)

(Common stock valuation) Dubai Metro's stock price was at $100 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price? a. What is the investor's required rate of return for Dubai Metro's stock? % (Round to two decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 17P
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(Common stock valuation) Dubai Metro's stock price was at $100 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price? .... a. What is the investor's required rate of return for Dubai Metro's stock? % (Round to two decimal places.)
Transcribed Image Text:(Common stock valuation) Dubai Metro's stock price was at $100 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price? .... a. What is the investor's required rate of return for Dubai Metro's stock? % (Round to two decimal places.)
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Part 1
​(Common stock​ valuation)  Dubai​ Metro's stock price was at
​$100
per share when it announced that it will cut its dividend for next year from
​$10
per share to
​$6
per​ share, with additional funds used for expansion. Prior to the dividend​ cut, Dubai Metro expected its dividends to grow at a
4
percent​ rate, but with the​ expansion, dividends are now expected to grow at
7
percent. How do you think the announcement will affect Dubai​ Metro's stock​ price?
 
 
 

Question content area bottom

Part 1
a.  What is the​ investor's required rate of return for Dubai​ Metro's stock?
 
14.0014.00​%
​(Round to two decimal​ places.)
Part 2
b.  What would be the price of Dubai​ Metro's stock if they cut the dividend to
​$6​?
 
​$85.7185.71  
​(Round to the nearest​ cent.)
Part 3
c.  How do you think Dubai​ Metro's stock price will react to the​ announcement? ​ (Select from the​ drop-down menu.)
 
If Dubai Metro were to cut the​ dividend, the price of the common stock will
decrease.
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