7 reh corporations most recent dividend was 176 per

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7.REH Corporation's most recent dividend was $1.76 per share, its expectedannual rate of dividend growth is 5%, and the required return is now 15%. Avariety of proposals are being considered by management to redirectthe firm's activities. Determine the impact on share price for each of thefollowing 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 growthrate 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 thedividend growth rate to 8% and raise the required return to 19%, the value ofthe 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 thatwill increase the dividend growth rate to 9 %and increase the requiredreturn to 19%, the value of the firm will be
8.Hamlin Steel Company wishes to determine the value of Craft Foundry, a firmthat it is considering acquiring for cash. Hamlin wishes to determine theapplicable discount rate to use as an input to the constant-growth valuationmodel. Craft's stock is not publicly traded. After studying the requiredreturns of firms similar to Craft that are publicly traded, Hamlin believes thatan appropriate risk premium on Craft stock is about 3%.The risk-free rate iscurrently 8%. Craft's dividend per share for each of the past 6 years is shownin the following table:yearDividend per share2015$2.632014$2.532013$2.442012$2.342011$2.252010$2.17a)Given that Craft is expected to pay a dividend of $2.74 next year, determinethe maximum cash price that Hamlin should pay for each share of Craft.

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Term
Spring
Professor
ROMERD
Tags
Finance, share

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