The stock of NorthPoint Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its
earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate
of return per year. This situation is expected to continue indefinitely.
a. Assuming the current market price of the stock reflects its intrinsic value as computed using
the constant-growth discounted dividend model (DDM), what rate of return do NorthPoint’s
investors require?
b. By how much does its value exceed what it would be if all earnings were paid as dividends
and nothing were reinvested?
c. If NorthPoint were to cut its dividend payout ratio to 25%, what would happen to its stock
price?
d. What if NorthPoint eliminated the dividend

The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (gdp) and other macroeconomic variables. a business cycle is typically characterized by four phases—recession, recovery, growth, and decline—that repeat themselves over time. economists note, however, that complete business cycles vary in length. the duration of business cycles can be anywhere from about two to twelve years, with most cycles averaging six years in length. some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations. but the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.