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Ontel Inc expects an EPS of $10 and DPS (dividend per share) of $6...

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Ontel Inc expects an EPS of $10 and DPS (dividend per share) of $6...

Ontel Inc expects an EPS of $10 and DPS (dividend per share) of $6 next year and expects to
maintain the same payout ratio for the foreseeable future. It has an opportunity to invest its
retained earnings at an ROIC of 15%.
a. What is Ontel's growth rate?
b. Given a cost of capital of 12%, what is Ontel's price per share?

 

Suppose Ontel announces that it is going to decrease its dividend to $4 next
year in order to retain more money into its projects.
C. Calculate the new stock price, assuming that the rest of the parameters of the question
stay unchanged. Explain why the new stock price increases.
D. In real life, when a firm announces a decrease in dividends the stock price usually goes
down. Explain what could be the reason for the discrepancy between the increase in
price in (c) and the negative announcement effect.

Answer & Explanation

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Answered by marymuriungi846 on coursehero.com
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