DFB, Inc., expects earnings this year of $5.37 per share, and it plans to pay a $3.54 dividend to shareholders. DFB will retain $1.83 per share of its earnings to reinvest in new projects with an expected return of 15.3% 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's equity cost of capital is 11.9%, what price would you estimate for DFB stock?
c. Suppose DFB instead paid a dividend of $4.54 per share this year and retained only $0.83 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?
This is what the company should do:___________
A. Raise dividends because the return on new investments is lower than the cost of capital.
B. Not raise dividends because projects have positive NPV when the return on new investments is higher than the firm's cost of capital.
C. Raise dividends because, according to the dividend-discount model, doing so will always improve the share price.
D. Not raise dividends because companies should always reinvest as much as possible.

Answers

Answer 1

It can be deduced that the growth rate of earnings that would be forecasted for DFB is 0.62%.

How to calculate the growth rate of earnings

First, we need to calculate the dividend payout ratio. This will be:

= 3.54/5.37 × 100

= 65.92%

The growth rate will be:

= (1 - d) × r

= (1 - 0.6592) × 0.0183

= 0.62%

When the equity cost of capital is 11.9%, the stock price will be:

= D / (Ke - g)

= 3.54(1 + 0.62%) / (11.90% - 0.62%)

= 31.58

When the company maintains a higher payout rate in the future, the stock price will be calculated thus:

Dividend payout ratio:

= 4.54/5.37 × 100

= 84.54%

The growth rate will be:

= (1 - d) × r

= (1 - 0.8454) × 0.0183

= 0.28%

The stock price will now be:

= D /(Ke - g)

= 4.54/(1 + 0.28%) / (11.90% - 0.28%)

= 39.18

Lastly, it's important for the company to raise dividends as this will always improve the share price.

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Related Questions

To define the ____ of the project accurately, it is very important to ensure consistency between the project charter, scope statement, WBS, Gantt chart, and related documents.

Answers

Answer:

scope

Explanation:

All of the following are covered under the Securities Exchange Act of 1934 EXCEPT: A Registration of new issues B Stabilization of new issues C Registration of exchanges D Registration of broker/dealers

Answers

Answer:

A Registration of new issues

Explanation:

Fill in the blank: The goal of a commerce ad is to increase _____. engagement sales views lead generation

Answers

Answer:

Sales

Explanation:

Your boss has tasked you with writing a company story that will help make them stand out from their competitors. Keeping this in mind, what’s the most effective question you should start with?

Answers

Keeping the above in mind, the most effective question you should start with is that Why are you doing what you are doing?.

Why ask the above question?

The question above is said to be the most effective question to start in this scenario because As a company, one should first state what one is trying to do.

If you are a firm selling bats to people then  the question that comes is  why are you doing it.

See options below

(A) What are you offering?

(B) How will this help your audience?

(C) Why are you doing what you are doing?

(D) None of the above

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________ models software in terms similar to those that people use to describe real-world objects.
(a) Method-oriented programming
(b) Object-oriented design
(c) Procedural programming
(d) None of the above

Answers

Object- oriented design models software.

________ at IKEA include cost-consciousness, constant desire for renewal, and accepting and delegating responsibility.

Answers

Ikea has core business values such as consciousness, constant desire for renewal, and accepting and delegating responsibility.

What are the core values in a company?

The fundamental values of a company are the purposes that guide the attitudes of all members of the company. Additionally, these values are related to the common objectives, mission and vision of a company.

In the case of Ikea, it is a company that emerged in Sweden that has led the market for the sale of furniture and other household items that has stood out for its business values.

Among the most outstanding values of Ikea are:

TogethernessCaring for people and planetCost-consciousnessSimplicityRenew and improveDifferent with a meaningGive and take responsibilityLead by example

Note: This question is incomplete because the options are missing. Here are the options:

A. Core values.

B. Missions.

C. Strategies.

D. Competencies.

E. Competitive Advantages.

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In a sole proprietorship, the profits earned by the business are:_________
a) taxed as income for the business, but exempt from the personal income tax paid by the owner.
b) taxed at the lowest corporate rate.
c) the property of the owner, except for taxes owed to the government.
d) tax-free if the appropriate exemption is filed with the local government.

Answers

In a sole proprietorship, the profits earned by the business are the property of the owner, except for taxes owed to the government.

What is a sole proprietorship?

A sole proprietorship is a type of business that is owned by only one person.

What are the characteristics of a sole proprietorship?It is owned by one personThe business has unlimited liabilityThe business usually lacks continuity. This type of business usually ceases to exist when the owner diesThe business is usually not separated from the owner

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If the Treasury uses a relatively large proportion of ________ debt to finance a budget deficit, this would place ________ pressure on long-term yields.
a. long-term; downward
b. long-term; upward
c. short-term; upward

Answers

Answer:

Long-term; Upward

Explanation:

Using the same brand name for different products is an application of which concept from behavioral learning theory?.

Answers

Using the same brand name for different products is an application of  behavioral learning theory known as stimulus generalization.

What is Stimulus generalization?

This is defined as the ability to behave in a new situation which has been learned in other similar situations.

The use of the same brand name for a different product depicts the concept of the theory which is referred to as stimulus generalization.

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Annika is the manager of an auto parts manufacturing facility in a developing country. This facility does not meet the acceptable standards of the manufacturing facility based in her home nation. She knows that demanding a better facility will raise the cost of the auto parts that are mainly exported to other less-developed countries. However, she also realizes that by not demanding a better facility, the employees who work there are prone to serious health issues. This scenario represents

Answers

The scenarios represent the case of Business ethics and dilemmas

What is Business ethics?

Business ethics refers to the standards and values of an organization. It defines what is morally right from what is wrong in business.

According to Annika, she is in between doing what is right or what is wrong. dilemmas

She must make decisions that will put her workers in serious health issues and at the same time, she must ensure the facility meets the acceptable standard laid down.

Therefore we can conclude that the scenarios represent the case of Business ethics and dilemmas

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When automakers offer special price reductions on all their automobiles during holiday shopping seasons, they are using the _____ strategy.

Answers

discount pricing strategy

how a commitment to a decision could assist a school leaver to adapt to the change of entrepreneurship?​

Answers

The commitment to a decision could assist the schooler leaver to adapt to the change of entrepreneurship by enabling them to remain focused.

What is entrepreneurship?

Entrepreneurship refers to the ownership of a business. The entrepreneur is an innovative and insightful person who starts a business to enjoy the advantages accruing from entrepreneurship, including independence.

Thus, the entrepreneur, who wants to reap the profits after bearing some risks, needs to remain focused.

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The description of potential customers in a target market is commonly called a: A. target picture. B. Simpkins matrix. C. demographic detailing. D. customer profile.

Answers

There are ways to get potential customers  to your product. The description of potential customers in a target market is commonly called a customer profile.

What is a Customers profile?

Customer profiles is known to be the records about people or customers, and they are often used as a guide for knowing whom to target with a particular products.

The records includes details such as age, gender, spending patterns, etc. There is an Up-to-date and accurate customer profile information that is needed to have a successful marketing.

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What is the least liquid current asset for a company?.

Answers

Inventory. This is usually the least liquid of the current assets, since inventory can only be sold if there is demand for it, and it can be converted into finished goods

When company managers formulate strategy decisions resulting from their internal analysis, they are primarily making decisions about how to Group of answer choices obtain and allocate critical and scarce resources. reduce costs in their industry. minimize foreign corporate income taxes. grow their company at any cost.

Answers

When the managers of a company formulate strategy decisions, they are primarily making decisions about A. how to obtain and allocate critical and scarce resources.

What is internal analysis?

It should be noted that internal analysis simply means the examination of the internal components of a company such as resources, processes, etc.

In a situation where company managers formulate strategy decisions resulting from their internal analysis, they are primarily making decisions about how to obtain and allocate critical and scarce resources.

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If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

Answers

The income elasticity of demand for this item is the income elasticity is 0.4 and the good is a normal good.

What is Income Elasticity Of Demand?

Note that for good or service that has a unique Income Elasticity Of Demand, is said to change in course of time.

The Income Elasticity Of Demand is known to be to how sensitive the quantity demanded for a said good is due to the  changes in income levels.

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Claton Industries has revenues of $128,000 for 2020. Their operating expenses are $80,000, and the income tax is $12,000. What is the net income for this company

Answers

Based on the information given the net income for this company is $36,000.

Net income

Using this formula

Net income=Revenues-Expenses

Where:

Revenues=$128,000

Expenses=$80,000+$12,000=$92,000

Let plug in the formula

Net income=$128,000-$92,000

Net income=$36,000

Inconclusion the net income for this company is $36,000.

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You will need to revise your budget to account for a car payment. Which expense category would be the most difficult to change or reduce? entertainment rent savings groceries.

Answers

The expense category that would be most difficult to change or reduce in a budget is the rent.

What is the budget?

A budget is a statement that shows the estimates regarding the income and expenditure of an individual or business for a specific period. A budget helps to allocate the resources between necessities and wants.

The expense that will be most difficult to revise is the rent expense. Rent is the fixed charge incurred for using a property. If one needs to revise our rent expense, we need to shift to a property with lower rent.

The entertainment, savings, and groceries can be easily revised by lowering down the expenses on the same.

Therefore the correct option is b.

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Answer:

b) rent

Explanation:

jus did assignment ed22

Kendra sells gourmet boxes of cookies. One box of cookies costs Kendra $6.75 to produce. She sells her boxes of cookies for $10. What is Kendra's return on investment (ROI)?

48%
30%
20%
58%

Answers

Based on the information given Kendra return on investment (ROI) is: 48%.

Return on investment (ROI)

Using this formula

Return on investment (ROI)=Selling price-Cost of production/Selling price ×100

Where:

Selling price=$10

Cost of production=$6.75

Let plug in the formula

Return on investment (ROI)=10-6.75/6.75

Return on investment (ROI)=3.25/6.75×100

Return on investment (ROI)=48%

Inconclusion Kendra return on investment (ROI) is: 48%.

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A ______ is a relatively rare market situation in which average total cost is minimized when only one firm produces the good.

Answers

Answer: A natural monopoly is the answer.

Hope this helps!

The cost of the business process is the sum of the cost of the inputs and the ________.

Answers

Answer:

I believe the answer for your question is A, Cost of the activities. Hope this helped!

why did Nike use sweatshops to produce their products ?

Answers

Answer:

Nike, Inc. has been accused of using sweatshops and worker abuse to produce footwear and apparel in East Asia. During the Nike attempted to lower costs after increasing cost of labor in Korean and Taiwanese factories, Nike began contracting in East Asian countries. ... Nike has participated into this right.

In the context of Henri Fayol's 14 principles of management, __________ refers to making expectations clear and punishing violations.

Answers

In the context of Henri Fayol's 14 principles of management, Discipline refers to making expectations clear and punishing violations.

What is Discipline  in this context?

In the context of Henri Fayol's 14 principles of management, Discipline  is known as when one make expectations clear and punish violations.

Holding the idea that discipline is regarded as the respect for agreements which are aimed as getting obedience, application, etc. Fayol states that discipline needs good superiors at all kinds of levels, clear and fair agreements, and good application of any kind of penalties.

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Operational decisions are considered to be structured decisions. True false.

Answers

Answer:

True

Explanation:

Because they are not just decisions that are just taken easily

Which of the following tips can hurt your cash flow?
A. Increase your sales.
B. Pay your bills early.
C. Keep a cash reserve.
D. Offer credit only to low risk borrowers

Answers

Answer:

D. Offer credit only to low risk borrowers

D. Offer credit only to low risk borrowers

Did anyone do business igcse paper 2 2020 may june?

Answers

Answer:what grade are you in maybe i can help you

Explanation:what’s the question.

Challenges faced by companies working with younger workers include creating stimulating work environments, offering reasonable work schedules, designing projects based on team work, and providing opportunities for ______.

Answers

The challenges faced by  companies working with younger workers include providing opportunities for positive feedback.

What is positive feedback?

This is the skill that is used in business to help motivate workers, boost people's confidence and also show that you value their input.

Positive feedback is very important in organizations given that it helps workers to be at their best.

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Marquis has a gross pay of $816. By how much will his gross pay be reduced if Marquis has the following items withheld? federal tax of $92 Social Security tax that is 6. 2% of his gross pay Medicare tax that is 1. 45% of his gross pay state tax that is 22% of his federal tax a. $82. 66 b. $129. 13 c. $164. 01 d. $174. 66 Please select the best answer from the choices provided A B C D.

Answers

Gross pay is the amount of income before taxes and deductions. The amount by which the gross pay is reduced is $174.66.

What is gross pay?

The gross pay is the amount of salary or wages that is before the taxes or other deductions. The expense of tax and deductions are subtracted from the gross pay to calculate the net pay.

The gross pay of Marquis in the given question is $816. His gross pay will be reduced by the taxes to calculate the net pay.

The amount of reduction will be the sum of all the taxes levied such as federal tax, social security tax, and so on.

Therefore the amount by which the gross pay will be reduced is:

[tex]\begin{aligned} \rm Federal\: tax &= \$92\\\\\rm Social\: security\: tax (\$816\times 6.2\%) &= \$50.592\\\\\rm Medicare\:tax (\$816\times 1.45\%) &= \$11.832\\\\\rm \end[/tex]

The state tax is calculated as a percentage of federal tax. The state tax is:

[tex]\rm State \:tax (\$92\times 22\%) &= \$20.24\\[/tex]

Therefore the total amount of reduction is:

[tex]\rm Total\:amount\:of\:reduction = \$92 + \$\$50.592 + \$11.832 +\$20.24\\\\\rm Total\:amount\:of\:reduction = \$174.664[/tex]

Hence, the correct option is d.

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he earliest known domesticated wheat, barley, and rice crops are thought to have originated in Asia about Group of answer choices 1.1 million years ago. 10 million years ago. 10,000 years ago. 100,000 years ago. 1,000 years ago.

Answers

Answer:

10,000 years ago

Explanation: The earliest known domesticated wheat, barley, and rice crops are thought to have originated in Asia about: 10,000 years ago.

Maxwell Corporation had a net income of $40,000, interest of $4,000, depreciation of $5,000, additions to net working capital of $6,000, and capital expenditures of $20,000. Maxwell Corporation's free cash flow amounts to ______.

Answers

Maxwell Corporation's free cash flow amounts to $23,000.

Free cash flow

First step is to calculate cash flow from operations

Cash flow from operations = Net income + Interest + Deprecation - Additions to net working capital

Cash flow from operations=$40,000 + $4,000 + $5,000 - $6,000

Cash flow from operations= $43,000

Second step is to calculate free cash flow

Free cash flow=Cash flow from operations -Capital expenditures

Free cash flow=$43,000 - $20,000

Free cash flow= $23,000

Inconclusion Maxwell Corporation's free cash flow amounts to $23,000.

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