SNV Corp. expects earnings at the end of this year of $5 per share. The...
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SNV Corp. expects earnings at the end of this year of $5 per share. The company announced today that it will cut dividend from $4 to $2 per share and use its retained earnings to expand its production capacity. After this announcement, SNVs dividend is expected to grow at 6% level. Before the announcement, the firms dividend growth rate was expected to be 3%. The risk of SNVs equity does not change by this new investment. The companys share price was $40 before the announcement. a. Whats the new share price of SNV after the announcement? b. What is the return on new investment? c. Under the new payout ratio, what is the ROIC that guarantees the share price remains unchanged even after the announcement?
SNV Corp. expects earnings at the end of this year of $5 per share. The company announced today that it will cut dividend from $4 to $2 per share and use its retained earnings to expand its production capacity. After this announcement, SNVs dividend is expected to grow at 6% level. Before the announcement, the firms dividend growth rate was expected to be 3%. The risk of SNVs equity does not change by this new investment. The companys share price was $40 before the announcement.
a. Whats the new share price of SNV after the announcement?
b. What is the return on new investment?
c. Under the new payout ratio, what is the ROIC that guarantees the share price remains unchanged even after the announcement?
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