9 ports Problem 18-15 Dividends and stockholder wealth maximization [LO18-2] The Vinson Corporation has eamings of $966,

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9 Ports Problem 18 15 Dividends And Stockholder Wealth Maximization Lo18 2 The Vinson Corporation Has Eamings Of 966 1 (38.91 KiB) Viewed 39 times

9 ports Problem 18-15 Dividends and stockholder wealth maximization [LO18-2] The Vinson Corporation has eamings of $966,500 with 350,000 shares outstanding. Its P/E ratio is 14. The firm is holding $440,000 of funds to invest or pay out in dividends. If the funds are retained, the aftertax retum on Investment will be 15 percent, and this will add to present earnings The 15 percent is the normal return anticipated for the corporation, and the P/E ratio would remain unchanged. If the funds are paid out in the form of dividends, the P/E ratio will increase by 10 percent because the stockholders in this corporation have a preference for dividends over retained eamings. a. Compute the price of the stock under the two plans. (Do not round Intermediate calculations and round your answers to 2 decimal places) Answer is complete but not entirely correct. Price of Stock $500.000.000 Retention plan Payout plan 50.00 Ⓒ b. Which plan will maximize the market value of the stock? Retention plan Payout plan