Management action and stock value
REH? Corporation's most recent dividend was $1.93 per? share, its expected annual rate of dividend growth is 5?%, and the required return is now 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.
a. Do? nothing, which will leave the key financial variables unchanged.
b. Invest in a new machine that will increase the dividend growth rate to 6?% and lower the required return to 12?%.
c. Eliminate an unprofitable product? line, which will increase the dividend growth rate to 8 8?% and raise the required return to 17%.
d. Merge with another? firm, which will reduce the growth rate to 1?% and raise the required return to 17?%.
e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 17?%.