Assume that Firm XYZ’s ROE= 15%, its beta = 2, the market return = 15%, the...

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Assume that Firm XYZ’s ROE= 15%, its beta = 2, the market return= 15%, the risk-free rate = 5%. The firm’s current Dividend PayoutRatio = 60%. If the firm increases its Dividend Payout Ratio to80%, its instinct value will
Increase
Decrease
Stay the same
Not enough information to decide
First decrease in short-term and then increase in thelong-term

Answer & Explanation Solved by verified expert

4.0 Ratings (550 Votes)

Return on Equity 15 As per CAPM Expected return on stock cost of equity Risk free rate Beta x Market risk premium Expected return on stock cost of equity Risk free rate Beta x Market returns risk See Answer

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Assume that Firm XYZ’s ROE= 15%, its beta = 2, the market return= 15%, the risk-free rate = 5%. The firm’s current Dividend PayoutRatio = 60%. If the firm increases its Dividend Payout Ratio to80%, its instinct value willIncreaseDecreaseStay the sameNot enough information to decideFirst decrease in short-term and then increase in thelong-term