SMK Broadcasting Is Thinking About Increasing Its Current Dividend from $1.00

question 129

Essay

SMK Broadcasting is thinking about increasing its current dividend from $1.00 to either $1.07 (a seven percent growth rate)or $1.10 (a ten percent growth rate). Once it adopts the change, SMK wants to maintain the same dividend growth rate for the foreseeable future. Hence, the required return with the higher growth rate is 16%, while the required return with the lower growth rate is 13%. Which dividend adjustment will result in a higher price for SMK Broadcasting's common stock?

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Definitions:

Direct Correlation

A relationship between two variables in which both either increase or decrease together.

Variables

Factors or conditions that can vary or change within a research or experimental setup, affecting outcomes or results.

Positive Correlation

A relationship between two variables in which both variables move in the same direction.

Decreases

Refers to a reduction or decline in the magnitude or value of a certain variable or quantity.