DFB. Ing, expects earnings next year of $4.11 per share, and it plans to pay a $1.69 dividend to shareholders (assume that is one year from now). DFB will retain $2.42 per share of its earnings to reinvest in new projects that have an expected roturn of 14.1% per year. Suppese DFB will maintain the same dividend payouf rate, retention rate. and retum 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 grewth rate of eamings would you forecast for DFB? b. If DFB's equity cost of capitat is 12.3%, what price would you estimate for DFB stock today? c. Supposo instead that DFB paid a dividend of $2.09 per share at the end of this year and retained onty $1.42 per share in earnirgs. That is, it chose to pay a higher dividend instead of reirwesting 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.) b. If DFB's equity cost of capital is 12.3%, what price would you estimate for DFB stock today? If DFB's equity cost of capitat is 12.3%, then DFB's stock price will be $ (Round to the nearest cent.) c. Suppose instead that DFB paid a dividend of $2.69 per share at the ond of this year and retained only $1.42 per share in eamings. 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? If DFB paid a dividend of $2.69 per share next year and retained only $1.42 per share in earmings, then DFB's stock price would be $ (Round to the neareat cant) Should DFB raise its dividend?: (Select the best choice below.) If DFB's equity cost of capitat is 12.3\%, then DFB's stock price will be s (Round to the nearest cent) c. Suppose instead that DFB paid a dividend of $2.69 per share at the end of this year and retained only $1.42 per share in eaming5. 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 peice would you estimate for the firm now? If DFB paid a dividend of $2.69 per share next year and retained only $1.42 per share in earnings, then DFB's stock price would be $ (Round to the nearest cent.) Should DFB raise its dividend? (Select the best choice below.) A. Yos, DFB should raise dividends because the return on new investments is lower than the cost of capital. B. No, DFB should not raise dividends because the projects are positive NPV: C. No, DFB should not raise dividonds because companies should always reinvest as much as possible. D. Yes, DFB should raise dividends because, according to the dividend-discount model, doing so wil always improve the share price
