Decker Incorporated's common stock currently trades at $45/share and recently paid a $3 dividend. The company plans to reduce dividends by a constant 2% rate in order to reinvest in itself for the foreseeable future. All else being equal, what effect with this change have on the value of Decker's common stock? It will increase OIt will decrease. OIt will be unaffected by the change. Cannot be determined.

Decker Incorporated's common stock currently trades at $45/share and recently paid a $3 dividend. The company plans to reduce dividends by a constant 2% rate in order to reinvest in itself for the foreseeable future. All else being equal, what effect with this change have on the value of Decker's common stock? It will increase OIt will decrease. OIt will be unaffected by the change. Cannot be determined.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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XYZ Inc., has an odd dividend policy. The company has just paid a dividend of $11.00 per share and has announced that it will increase the dividend by $9.00 per share for each of the next four years, and then never pay another dividend. If you require a return of 16 percent on the company’s stock, how much will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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