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.

company recently paid an annual dividend of $10. Starting next year, it will implement a 5% yearly dividend growth policy. Investors require a 12% return. The value of this stock in 4 years can be calculated as follows:

A majority of the board of directors is sufficient to declare stock dividends.Group of answer choicesTrueFalse

Roxette, Inc., will pay fixed dividends at the end of each of the next two years. The dividend will then grow at a constant rate of 6 percent per year thereafter forever. The current share price is $70. What is next year’s dividend payment if the required rate of return is 10 percent?Part B [5 marks]Green Tech Ltd. currently trades at $75 per share. The required return on its share is 10 percent. The total return on its share is equally divided between a capital gains yield and a dividend yield. Green Tech’s policy is to always maintain a constant growth rate in dividends. What is its current dividend per share?

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?

In theory, a high dividend payout policy should result for the company inALow earnings reinvestment rate and lower growth of net profitBHigh earnings reinvestment rate and lower growth of net profitCLow earnings reinvestment rate and higher growth of net profitDHigh earnings reinvestment rate and higher growth of net profit