DFB, Inc. expects earnings next year of $5.63 per share, and it plans to pay a $4.11 dividend to shareholders (assume that is one year from now). DFB will retain $1.52 per share of its earnings to reinvest in new projects that have an expected return of 14.8% 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. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 12.5%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $5.11 per share at the end of this year and retained only $0.52 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its dividend? a. What growth rate of earnings would you forecast for DFB? DFB's growth rate of earnings is %. (Round to two decimal places.)
DFB, Inc. expects earnings next year of $5.63 per share, and it plans to pay a $4.11 dividend to shareholders (assume that is one year from now). DFB will retain $1.52 per share of its earnings to reinvest in new projects that have an expected return of 14.8% 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. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 12.5%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $5.11 per share at the end of this year and retained only $0.52 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its dividend? a. What growth rate of earnings would you forecast for DFB? DFB's growth rate of earnings is %. (Round to two decimal places.)
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 15P
Related questions
Question
![DFB, Inc. expects earnings next year of $5.63 per share, and it plans to pay a $4.11 dividend to
shareholders (assume that is one year from now). DFB will retain $1.52 per share of its earnings to reinvest in
new projects that have an expected return of 14.8% 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.
a. What growth rate of earnings would you forecast for DFB?
b. If DFB's equity cost of capital is 12.5%, what price would you estimate for DFB stock today?
c. Suppose instead that DFB paid a dividend of $5.11 per share at the end of this year and retained only
$0.52 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new
projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the
firm now? Should DFB raise its dividend?
a. What growth rate of earnings would you forecast for DFB?
DFB's growth rate of earnings is %. (Round to two decimal places.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7ab2fcdd-e673-450e-8879-48d7de8ef6bd%2F95166b0d-da66-4c7e-8e56-283316bf4909%2Fpufz2aq_processed.png&w=3840&q=75)
Transcribed Image Text:DFB, Inc. expects earnings next year of $5.63 per share, and it plans to pay a $4.11 dividend to
shareholders (assume that is one year from now). DFB will retain $1.52 per share of its earnings to reinvest in
new projects that have an expected return of 14.8% 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.
a. What growth rate of earnings would you forecast for DFB?
b. If DFB's equity cost of capital is 12.5%, what price would you estimate for DFB stock today?
c. Suppose instead that DFB paid a dividend of $5.11 per share at the end of this year and retained only
$0.52 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new
projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the
firm now? Should DFB raise its dividend?
a. What growth rate of earnings would you forecast for DFB?
DFB's growth rate of earnings is %. (Round to two decimal places.)
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