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Rebel expects to have earnings per share 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, Rebel's current share price is $60. Suppose Rebel could cut its dividend payout ratio to 75% for the foreseeable future and use the retained earnings to open new stores. The return on its investment in these stores in expected to be 12%. Assuming its equity cost of capital is unchanged, what effect would this new policy have on Rebel's stock price?

Reference no: EM133275360

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