If samsung would expand its business to the semi-conductor

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Samsung produces powerful handsets. Recently, the company paid a $1.25 dividend.

Investors expect the dividends to grow constantly at 8% per year, and they require a 12% return on Samsung's shares.

(a) What is Samsung's share price?

(b) How would the share price change if investors believe that Samsung's long-term growth rate would be 7% rather than 8%?

(c) If Samsung would expand its business to the semi-conductor industry, the investors would change their expectation accordingly. The expected growth rate of dividends would be 10%, but the required rate of return would increase as well, to 15%. What is the new share price for Samsung? Please also provide your judgment whether Samsung should step into the semi-conductor industry.

Reference no: EM13620830

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