DFB$,$ Inc., expects earnings at the end of this year of $ $5\mathrm{.}44$ per$$ share, and it plans to pay a $ $3\mathrm{.}82$ dividend at that time. DFB will retain $ $1\mathrm{.}62$ per share of its earnings to reinvest in new projects with an expected return of $14\mathrm{.}4\%$ per year. Suppose DFB will maintain the same dividend payout$$ rate, retention$$ rate, and return on new investments in the future and will not change its number of outstanding shares.

a$.$ What growth rate of earnings would you forecast for$$ DFB$?$

b$.$ If$$ DFB$\text{'}$s equity cost of capital is $12\mathrm{.}2\%,$ what price would you estimate for DFB stock$$ today?

c$.$ Suppose DFB instead paid a dividend of $ $4\mathrm{.}82$ per share at the end of this year and retained only $ $0\mathrm{.}62$ 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$$ now? Should DFB raise its$$ dividend?

Should DFB raise its$$ dividend? $($Select the best choice$$ below.$)$

A$.$

DFB should raise dividends$$ because, according to the$$ dividend$-$discount model, doing so will always improve the share price.

B$.$

DFB should not raise dividends because companies should always reinvest as much as possible.

C$.$

DFB should not raise dividends because projects have positive NPV when the return on new investments is higher than the$$ firm's cost of capital.

D$.$

DFB should raise dividends because the return on new investments is lower than the cost$$of$$capital$.$