step by step, 2. (8 pts) Crane sporting goods expect to have earnings...
60.1K
Verified Solution
Link Copied!
Question
Accounting
step by step,
2. (8 pts) Crane sporting goods expect to have earnings per share (EPS) 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 these expectations of no growth, Crane's current share price is $60. a) Suppose crane could cut its dividend payout rate to 75% for the foreseeable future and use the retained earnings to open new stores. The return on its investment in these stores is expected to be 12%. Assuming its equity cost of capital is unchanged (10%), what effect would this new policy have on Crane's stock price? (4 pts) b) Suppose Crane Sporting Goods decides to cut its dividend payout rate to 75% to invest in new stores, but now suppose that the return on these new investments is 8%, rather than 12\%. Given its excepted earnings per share this year of $6 and its equity cost of capital of 10%, what will happen to Crane's current share price in this case? (4 pts)
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
