Calculate the expected share price for fincorp

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FINCORP is considering an expansion in capacity. It plans to reduce its dividend from $5 per share to $3 per share, and use the additional retained profits to fund the expansion. Currently, FINCORP's share price is $40, and dividends are expected to grow at 4%. If FINCORP goes ahead with the expansion plan, it is expected that dividend growth will be 8%. It is not expected that the expansion will affect FINCORP's level of risk. Calculate the expected share price for FINCORP if it decides to go ahead with the plan and makes an announcement to this effect. Has FINCORP made a positive NPVinvestment decision?

Reference no: EM13270147

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