Fin 430 – Southern Foods Just Paid An Annual Dividend Of $3.10 A Share.

21. Southern Foods just paid an annual dividend of $3. 10 a share. Management estimates the dividend will increase by 4 percent for one year then 8 percent for two years then 2% forever. The required rate of return is 12 percent. What is the value of this stock today?22. A company has a required return of 16%, a profit margin of 3%, a D/E ratio of 1 and total asset turnover of 2 and just paid a $3. 00 Dividend. A) The company has a dividend payout ratio of 20%, calculate the price and forward P/E ratio. B) If the company changed its dividend payout ratio to 40%, calculate the price and forward P/E ratio?C) Explain why the price and P/E ratio increased or decreased. What variables are critical to determine if they should increase or decrease their dividend payout ratio? (Hint be specific what variables do you need to know. )

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