Samsung produces powerful handsets. Recently, the company paid a $1.25 dividend.
Investors expect the dividends to grow constantly at 8% per year, and they require a 12% return on Samsung's shares.
(a) What is Samsung's share price?
(b) How would the share price change if investors believe that Samsung's long-term growth rate would be 7% rather than 8%?
(c) If Samsung would expand its business to the semi-conductor industry, the investors would change their expectation accordingly. The expected growth rate of dividends would be 10%, but the required rate of return would increase as well, to 15%. What is the new share price for Samsung? Please also provide your judgment whether Samsung should step into the semi-conductor industry.