DFB, Inc. expects earnings next year of $4.41 per share, and itplans to pay a $2.02 dividend to shareholders (assume that isone year from now). DFB will retain $2.39 per share of itsearnings to reinvest in new projects that have an expected returnof 15.7% per year. Suppose DFB will maintain the same dividendpayout rate, retention rate, and return on new investments in thefuture and will not change its number of outstanding shares.Assume next dividend is due in one year.a. What growth rate of earnings would you forecast for DFB?b. If DFB's equity cost of capital is 12.8%, what price would youestimate for DFB stock today?c. Suppose instead that DFB paid a dividend of $3.02 per shareat the end of this year and retained only $1.39 per share inearnings. That is, it chose to pay a higher dividend instead ofa. What growth rate of earnings would you forecast for DFB?DFB's growth rate of earnings is%. (Round to onedecimal place.)

Stock price refers to the price at which the stocks are bought and selling by the stockholders in…

DFB, Inc. expects earnings next year of $4.41 per share, and it plans to pay a $2.02 dividend to shareholders (assume that is one year from now). DFB will retain $2.39 per share of its earnings to reinvest in new projects that have an expected return of 15.7% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year.

DFB, Inc. expects earnings next year of $4.41 per share, and it plans to pay a $2.02 dividend to shareholders (assume that is one year from now). DFB will retain $2.39 per share of its earnings to reinvest in new projects that have an expected return of 15.7% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

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