7 reh corporations most recent dividend was 176 per

7. REH Corporation's most recent dividend was $1.76 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) If the firm does nothing that will leave the key financial variables unchanged,
the value of the firm will be
b) If the firm invests in a new machine that will increase the dividend growth
rate to 8% and lower the required return to 12%, the value of the firm will be
c) If the firm eliminates an unprofitable product line that will increase the
dividend growth rate to 8% and raise the required return to 19%, the value of
the firm will be
d) If the firm merges with another firm that will reduce the growth rate to 1%
and raise the required return to 16%, the value of the firm will be

e) If the firm acquires a subsid1ary operation from another manufacturer that
will increase the dividend growth rate to 9 %and increase the required
return to 19%, the value of the firm will be
8. Hamlin Steel Company wishes to determine the value of Craft Foundry, a firm
that it is considering acquiring for cash. Hamlin wishes to determine the
applicable discount rate to use as an input to the constant-growth valuation
model. Craft's stock is not publicly traded. After studying the required
returns of firms similar to Craft that are publicly traded, Hamlin believes that
an appropriate risk premium on Craft stock is about 3%.The risk-free rate is
currently 8%. Craft's dividend per share for each of the past 6 years is shown
in the following table:
year Dividend per share
2015 $2.63
2014 $2.53
2013 $2.44
2012 $2.34
2011 $2.25
2010 $2.17
a) Given that Craft is expected to pay a dividend of $2.74 next year, determine
the maximum cash price that Hamlin should pay for each share of Craft.