DFB, Inc. expects earnings next year of $8 per share and plans to pay a $3...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
DFB, Inc. expects earnings next year of $8 per share and plans to pay a $3 dividend to shareholders. DFB will retain $5 per share of its earnings to reinvest in new projects that have an expected return of 10.1% 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. Assume that the next dividend is due in one year. a. What growth rate of eamings would you forecast for DFB? b. If DFB's equity cost of capital is 12%, what price would you estimate for DFB stock? c. Suppose instead that DFB increases its dividend to $4 per share at the end of this year. That is, suppose it chooses to pay a higher dividend instead of reinvesting as much in new projects. If DFB makes this change now and maintains the higher payout rate in the future, what stock price would you estimate for the firm now? d. Should DFB invest less in order to increase its dividend? a. DFB's growth rate of earnings is 6.3 %. (Round to one decimal place.) b. If DFB's equity cost of capital is 12%, then DFB's stock price will be $ 52.75. (Round to the nearest cent.) c. If DFB instead paid a dividend of $4 per share next year and retained only $4 per share in earnings, then DFB's new stock price would be $ 5.05. (Round to the nearest cent.) d. Should DFC invest less in order to increase its dividend? OA. No DFB, Inc. expects earnings next year of $8 per share and plans to pay a $3 dividend to shareholders. DFB will retain $5 per share of its earnings to reinvest in new projects that have an expected return of 10.1% 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. Assume that the next dividend is due in one year. a. What growth rate of eamings would you forecast for DFB? b. If DFB's equity cost of capital is 12%, what price would you estimate for DFB stock? c. Suppose instead that DFB increases its dividend to $4 per share at the end of this year. That is, suppose it chooses to pay a higher dividend instead of reinvesting as much in new projects. If DFB makes this change now and maintains the higher payout rate in the future, what stock price would you estimate for the firm now? d. Should DFB invest less in order to increase its dividend? a. DFB's growth rate of earnings is 6.3 %. (Round to one decimal place.) b. If DFB's equity cost of capital is 12%, then DFB's stock price will be $ 52.75. (Round to the nearest cent.) c. If DFB instead paid a dividend of $4 per share next year and retained only $4 per share in earnings, then DFB's new stock price would be $ 5.05. (Round to the nearest cent.) d. Should DFC invest less in order to increase its dividend? OA. No
Expert Answer:
Answer rating: 100% (QA)
a To forecast the growth rate of earnings for DFB we can use the sustainable growth rate formula Sus... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
Students also viewed these accounting questions
-
1. If you own 15 000 shares of BHP Billiton Ltd (BHP) and it pays a dividend of $0.27 per share, what is the total dividend you will receive? 2. Telford Corporation has a current share price of $20...
-
DFB, Inc., expects earnings at the end of this year of $5 per share, and it plans to pay a $3 dividend to shareholders (assume that is one year from now). DFB will retain $2 per share of its earnings...
-
Erin Danielle Company purchased equipment and incurred the following costs. What amount should be recorded as the cost of the equipment? (a) $24,000. (c) $25,400. (b) $25,200. (d) $25,800. Cash price...
-
Would you expect distributions of these variables to be uniform, unimodal, or bimodal? Symmetric or skewed? Explain why. a) Ages of people at a Little League game. b) Number of siblings of people in...
-
Bannack Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2012. An income statement for the year and comparative balance sheets are as follows: For the Year...
-
Using Program16.m(Houbolt method), solve Problem 11.19. Data From Problem 11.19:- Using the central difference method, find the response of the system shown in Fig. 11.2 when \(F_{1}(t)=10 \sin 5 t\)...
-
Parker Company manufactures and sells a single product. A partially completed schedule of the companys total and per unit costs over a relevant range of 60,000 to 100,000 units produced and sold each...
-
4. While your machine is connected to a network by a network interface, you might have several applications are exchanging data through the network at the same time. (10 marks) a. Draw a diagram and...
-
When a company is the recipient of a donated asset, the accountcredited may be a Group of answer choices deferred revenue account. All of the other choices are correct. revenue account. paid-in...
-
What are the evolutionary origins and adaptive significance of complex biological phenomena such as altruism, social cooperation, and communication systems in diverse organisms ranging from microbes...
-
What are the underlying genetic and environmental factors that contribute to the manifestation and progression of complex diseases such as cancer, neurodegenerative disorders, and autoimmune...
-
Example scope and objective of understanding business intelligence in an organization.
-
Congress grilling Goldman Sachs executives How was email abused in this video?
-
How does the electronic monitoring of employee communication in organizations fit clearly with classical aspects of workplace communication?
-
Suppose you are the V.P. of the Acme marketing group, Ltd attending a launch party of the willow woolproof widget. Write a marketing plan. What good is that going to do? The Add guys figure it all...
-
Suppose that you could invest in the following projects but have only $30,000 to invest. How would you make your decision and which projects would you invest in? Project Cost $ 8,000 11,000 9,000...
-
Motion of the equilateral triangular plate \(A B C\) in its plane is controlled by the hydraulic cylinder \(D\). If the piston rod in the cylinder is moving upward at the constant rate of \(0.3...
-
The wheel of radius \(r=300 \mathrm{~mm}\) rolls to the right without slipping and has a velocity \(v_{O}=3 \mathrm{~m} / \mathrm{s}\) of its center \(O\). Calculate the velocity of point \(A\) on...
-
Crank \(C B\) oscillates about \(C\) through a limited arc, causing crank \(O A\) to oscillate about \(O\). When the linkage passes the position shown with \(C B\) horizontal and \(O A\) vertical,...
Study smarter with the SolutionInn App