Question
(Common stock valuation) Dubai Metro's stock price was at $90 per share when it announced that...
(Common stock valuation) Dubai Metro's stock price was at $90 per share when it announced that it will cut its dividend for next year from $10 per share to $6 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 7 percent rate, but with the expansion, dividends are now expected to grow at 10 percent. How do you think the announcement will affect Dubai Metro's stock price?
a. What is the investor's required rate of return for Dubai Metro's stock?
(Round to two decimal places.)
b. What would be the price of Dubai Metro's stock if they cut the dividend to $6?
$. (Round to the nearest cent.)
c. How do you think Dubai Metro's stock price will react to the announcement? (Select from the drop-down menu.)
If Dubai Metro were to cut the dividend, the price of the common stock will
▼
decrease.
increase.
not change.
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