DFB, Inc., expects earnings at the end of this year of $4.19 per share, and it plans to pay a $2.43 dividend at that time. DFB will retain $1.76 per share of its earnings to reinvest in new projects with an expected return of 15% 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’s equity cost of capital is 12.2%, what price would you estimate for DFB stock today? c. Suppose DFB instead paid a dividend of $3.43 per share at the end of this year and retained only $0.76 per share in earnings. If DFB maintains this higher payout rate in the future, what stock price would you estimate now? Should DFB raise its dividend?

FTHC Ltd has forecast earnings per share in a year’s time of $2.50. FTHC Ltd has a policy of distributing 70% of earnings as an annual dividend. You forecast that dividends are expected to grow at a constant rate of 6% per annum each year following the dividend next year. If the required return from FTHC Ltd shares is 15% per annum, which of the following is closest to the present value of FTHC Ltd’s growth opportunities (measured on a per share basis)? (a) $2.78 (b) $4.50 (c) $19.44 (d) $27.00

You are considering the purchase of Miller Manufacturing, Inc.'s common stock. The stock is selling for $21.00 per share. The next dividend is expected to be $2.10, and you expect the dividend to keep growing at a constant rate. If the stock is returning 15%, calculate the growth rate of dividends. A. 3% B. 5% C. 8% D. 10%

A company just paid an annual dividend of €1.25 per share. If the required annual rate of return is 14% and dividends are expected to grow indefinitely at a constant rate of 8%, the company’s intrinsic value per share is closest to:A.€16.88.B.€20.83.C.€22.50.

The board of directors must decide on Faverzani Inc.'s (FI) future dividend policy. The board has two options:a) Retain 40% of earnings and reinvest these earnings in projects returning 12% per year (i.e., ROE=12%). This would result in an annual dividend growth rate of 4.8%.b) Pay out all earnings in dividends. This would result in a zero dividend growth rate.Assume directors act in shareholders’ best interests, how should the board decide? The required rate of return on FI stock is 14% (EAR).Question 21Answera), because dividends would grow at 4.8%.cross outb), because paying out all earnings in dividends increases future dividends.cross outb), because in a) ROE < RRR.cross outa), because reinvesting some earnings increases the stock price.cross outThe board is indifferent between a) and b). Both options would make shareholders happy.

Networks Ltd is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 18% during the next two years, 15% in the third, and then at a constant rate of 6 per cent thereafter. Networks’ last dividend, which has just been paid, was $0.115. If the required return on the shares is 12%, what is the price of the share today?