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Dividend cut and reinvestment decision

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ABC Co. expects to have EPS of $8 in the coming year and it is expected to pay out all the earnings as dividends. Currently its stock is trading at $80. Assume ABC Co. is considering to cut its dividend payout rate to 75% and use the retained earnings to expand its business. The return on its investments in new business is expected to be 8%. What will be the stock price after the announcement of the dividend cut and reinvestment decision?

Reference no: EM132379801

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