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

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?