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Mark Smith, the new CFO of ITG is considering increasing the company’s growth rate entering a...

Mark Smith, the new CFO of ITG is considering increasing the company’s growth rate entering a new line of business. Currently, ITG has a current dividend of $1.50 per share and its dividend is expected to grow at a constant rate of 8%. The company’s beta is 1.5 and the risk free rate is 3% and the market risk premium is 9%. Mark Smith has consulted some security analysts and told them about the new line of business he is considering. These analysts say if ITG enters this new line of business their growth rate in dividends and earnings will increase to a constant rate of 13% per year, but the company will have more market risk causing its beta to rise to 1.9. Now Mark needs your help. Should ITG enter this new line of business? Show your work to justify your recommendation.

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