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Question
Mahlo is planing to diversify into the bakery industry. As a result, its beta should drop from 1.4 to 1.2 and the expected long-term growth rate of dividends will drop from 12% to 9%. The risk-free rate is 4%, the expected market risk premium is 9%, and the current dividend per share paid by Mahlo is $2.10. Should Mahlo complete the diversification into the bakery industry?a. No, stock price drops about $11.70
b. Yes, stock price increases about $9.40
c. Yes, stock price increases about $1.80
d. No, stock price drops about $9.40
Answer
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Related questions
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Q:
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