Compute the future growth rate

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Blue company expects to earn $662 per share at the end of the year and intends to pay out $315 in dividends to shareholders. The company's net income is 500 million and its common share equity is $2,000 million.

Problem a. Compute the future growth rate.

Problem b. If the investors' required rate of return for the stock is 24 percent, estimate the company's common stock value.

Problem c. The finance director is considering a change in the dividend policy and continue with the same dividend payout ratio permanently. Before communicating the adequate revision in the dividend policy to the shareholder, he proposes to increase the dividend to $400. Estimate what would happen to the stock value.

Problem d. Which dividend level would you recommend to the company? Justify your answer.

Reference no: EM132809043

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