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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 willa)Increaseb)Decreasec)Stay the samed)Not enough information to decidee)First decrease in short-term and then increase in thelong-term
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