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A Mature Company on Beverage and Food Industry, with Stable Earnings expects to have earnings...

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Accounting

A Mature Company on Beverage and Food Industry, with Stable Earnings expects to have earnings per share (hereafter, EPS) of 21 dollars in the coming year and its current stock price is 320 dollars. The management must decide between the following alternatives: Pay all of its earnings as dividends and abandon the new investment in San Francisco or Cut its dividend payout rate to 29% and implement the San Francisco Project. If the second policy is followed there is a divergence in the estimation of the Return on New Investment (ROI).

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