BFD, Inc. expects earnings this year of $4.00 per share, and it plans to pay a $2.50 dividend to shareholders. Retained earnings are invested in new projects with an expected return of 15% per year. The dividend payout rate and return on new investments are expected to remain constant in the future. The equity cost of capital is 9%.

a) What is the value of the stock?

b) BFD management is considering raising the dividend payout rate. Explain briefly whether you think this is a good idea or not.