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Assume that Firm XYZ’s ROE= 15%, its beta = 2, the market return = 15%, the...

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Finance

Assume that Firm XYZ’s ROE= 15%, its beta = 2, the market return= 15%, the risk-free rate = 5%. The firm’s current Dividend PayoutRatio = 60%. If the firm increases its Dividend Payout Ratio to80%, its instinct value will

Increase

Decrease

Stay the same

Not enough information to decide

First decrease in short-term and then increase in thelong-term

Answer & Explanation Solved by verified expert
4.0 Ratings (550 Votes)
Return on Equity 15 As per CAPM Expected return on stock cost of equity Risk free rate Beta x Market risk premium Expected return on stock cost of equity Risk free rate Beta x Market returns risk    See Answer
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Transcribed Image Text

Assume that Firm XYZ’s ROE= 15%, its beta = 2, the market return= 15%, the risk-free rate = 5%. The firm’s current Dividend PayoutRatio = 60%. If the firm increases its Dividend Payout Ratio to80%, its instinct value willIncreaseDecreaseStay the sameNot enough information to decideFirst decrease in short-term and then increase in thelong-term

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