A computer company's share price is $130 per share; earnings and dividends are $6.60 a share, and the growth rate is zero. They have just announced a new growth strategy whereby the company's earnings would begin growing by 2% per year and remain stable at this new rate. This new growth strategy will require the company to reinvest 30% of their earnings starting at the end of this year (t = 1). What will happen to the price per share of this company?
- Price will remain unchanged.
- Insufficient information to determine the price change.
- Price will decrease by $20.15 per share.
- Price will increase by $20.15 per share.