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What rate of return do nogro investors require

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Reference no: EM133145915

Question - The company has a policy of paying out 40% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 25% rate of return per year. This situation is expected to continue indefinitely.

Required -

a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nogro's investors require?

b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing was reinvested?

c. If Nogro were to cut its dividend payout ratio to 25%, what would happen to its stock price?

d. If Nogro eliminated the dividend, what would happen to its stock price?

Reference no: EM133145915

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