DFB$,$ Inc., expects earnings this year of $$4\mathrm{.}42$ per share, and it plans to pay a $$2\mathrm{.}59$

dividend to shareholders. DFB will retain $$1\mathrm{.}83$ per share of its earnings to reinvest in

new projects with an expected return of $14\mathrm{.}3\%$ 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 $11\mathrm{.}4\%,$ what price would you estimate for DFB stock?

c$.$ Suppose DFB instead paid a dividend of $$3\mathrm{.}59$ per share this year and retained only

$$0\mathrm{.}83$ 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 follow this new policy?

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

Earnings growth rate will be $5\mathrm{.}92\%.($Round to two decimal places.$)$

b$.$ If DFB$\text{'}$s equity cost of capital is $11\mathrm{.}4\%,$ what price would you estimate for DFB stock?

The stock price will be $$47\mathrm{.}26.($Round to the nearest cent.$)$

c$.$ Suppose DFB instead paid a dividend of $$3\mathrm{.}59$ per share this year and retained only

$$0\mathrm{.}83$ 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?

In this case the stock price will be $

$($Round to the nearest cent.$)$