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PhillyDogCare is currently selling at $150 per share. The firm’s ROE is 20% and its market...

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Finance

PhillyDogCare is currently selling at $150 per share. Thefirm’s ROE is 20% and its market capitalization rate is 15%. If thecompany decides to increase its plow back rate from 60% to 80%,what would you expect of the company’s stock price?
a) Price will increase because investors will correctlyanticipate that PhillyDogCare’s dividends will grow at a fasterrate with a smaller payout ratio
b) Price will drop because many investors will be upset aboutmuch lower future dividends
c) Price will increase because the firm will invest in morepositive NPV projects
d) Both A and C
e) Not enough information

Answer & Explanation Solved by verified expert
3.8 Ratings (485 Votes)
Plow back ratio is opposite of dividend payout ratio it indicates the amount that company is investing back in its business after paying out dividends The formula for the same is as follows Plow Back    See Answer
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