A company has a required return of 12%, a profit margin of 4%, a D/E ratio of 0.5 and total asset turnover of 2. Annual dividends last year were $2.00.

A) The company has a dividend payout ratio of 20%; calculate the price and forward P/E ratio. 

B) If the company would have changed its dividend payout ratio to 60%, what would happen to the price and forward P/E ratio?

C) What variables are critical to determine if they should increase or decrease their dividend payout ratio? (Hint be specific what variables do you need to know.)