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Crane Sporting Goods expect to have earnings per share of $6 in the coming year....

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Finance

Crane Sporting Goods expect to have earnings per share of $6 in the coming year. Rather than reinvest these earnings and grow, the firm plans to pay out all of its earnings as a dividend. With the expectation of zero growth in dividend, the firm's current share price is $60. Suppose the firm plans to cut its dividend payout rate to 75% for the forseeable future and use the retained earnings to open new stores. The return on equity for these new stores is expected to be 12%. How would this change in dividend policy affect stock prices according to discount dividend model?

Stock price will increase

Stock price will decrease

Stock price will stay the same

Not sure about the direction of change

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