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Leave the key financial variables unchanged

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REH Ltd.'s most recent dividend was $3 per share, its expected annual rate of dividend growth is 5%, and the required return is 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions, and indicate the best alternative.

a. Do nothing, which will leave the key financial variables unchanged.

b. Invest in a new machine that will increase the dividend growth rate ot 6% and lower the required return to 14%.

c.. Merge with another firm, which will reduce the growth rate to 4% and raise the required return to 16%.

d. Acquire a subsidiary operation from another manufacturer. The acquisistion should increase the dividend growth rate to 8% and increase the required return to 17%

e. Which alternative is best? Even without finding the share price, how should you know this alternative is best?

f. Which alternative is the worst choice? Again, how should you know this alternative was the worst choice?

Reference no: EM132679346

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