Toy plc is expected to record earnings per share of £7.00 next year and is expected to maintain its policy of paying out 70 per cent of earnings per share in the form of dividends and reinvesting the remaining 30 per cent in new assets. The company's earnings and dividends are expected to grow at 6 per cent per annum indefinitely into the future. The required rate of return on the company's shares is 14 per cent. 6 U Determine the value of a share in the company. What rate of return is expected to be earned on the company's investments? Alternatively, Toy plc could increase dividend growth to 7 per cent per annum indefinitely into the future by reducing dividend pay out to 60 per cent of earnings. Would shareholders welcome this change?

Toy plc is expected to record earnings per share of £7.00 next year and is expected to maintain its policy of paying out 70 per cent of earnings per share in the form of dividends and reinvesting the remaining 30 per cent in new assets. The company's earnings and dividends are expected to grow at 6 per cent per annum indefinitely into the future. The required rate of return on the company's shares is 14 per cent. 6 U Determine the value of a share in the company. What rate of return is expected to be earned on the company's investments? Alternatively, Toy plc could increase dividend growth to 7 per cent per annum indefinitely into the future by reducing dividend pay out to 60 per cent of earnings. Would shareholders welcome this change?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 6P

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