Problem
World Telecom, a telecommunication firm based in Singapore, is expected to pay S$3.5 of dividend per share next year. World Telecom's expected earnings per share for the next year is S$10.5. It is expected to grow forever at a rate of 4%. Its cost of equity is 6%. Its return on equity is 6%.
A. What is its share price?
B. What will be the share price if the firm increases the payout ratio to 100%?
C. What will be the share price if the firm decreases the payout ratio to 10%?
D. What will be the share price if the firm increases the plowback ratio to 100%?
E. What will be the effect on share price if the firm increases the payout ratio when the firm's return on equity is above 6%?