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Explain new constant growth rate in dividends

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Chester Corporation's stock is currently paying a dividend of $2 per share. Dividends are expected to grow at a constant rate of 5% and the stock's beta is 1.4. The return on the market is 12%, and the risk-free rate is 6%. The firm is considering a change in strategy which will increase its beta to 1.6. If all else remains unchanged, what would the new constant growth rate in dividends have to be for the firm's stock price to remain unchanged?

Reference no: EM132953530

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