What stock price would you estimate for the firm now

Assignment Help Financial Management

Reference no: EM131332169

DFB, Inc. expects earnings this year of $5.75 per share, and it plans to pay a $3.86 dividend to shareholders. DFB will retain $1.89 per share of its earnings to reinvest in new projects that have 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 12.4%, what price would you estimate for DFB stock? c. Suppose instead that DFB paid a dividend of $4.86 per share this year and retained only $0.89 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 for the firm now? Should DFB raise its dividend?

Reference no: EM131332169

Questions Cloud

Yield on zero-coupon bonds : A young investment banker considers issuing a bond for ¥100 million. The interest or coupon is paid on year 1 and year 2. What should the interest paid in yen be? What about if the young investment banker considers issuing a bond $/yen dual-curren..

Stages and characteristics of romantic relationships : Create a case study, 250-500-words involving a fictitious couple experiencing the stages and characteristics of romantic relationships. Think of this case study as a "story" that you are telling about the process the couple goes through when build..

Find all the equilibria in the given three player game : Find all the equilibria in the following three-player game, in which Player I chooses a row (T or B), Player II chooses a column (L or R), and Player III chooses a matrix (W or E).

Non-defective sneakers : 1. Acme Track Incorporated received 360 pairs of Nike running shoes. Each pair sells for $58. Acme found 1/ 9 of the pairs to be defective and returned them. Assuming each pair cost Acme $26, what profit did Acme make assuming all non-defective sn..

What stock price would you estimate for the firm now : DFB, Inc. expects earnings this year of $5.75 per share, and it plans to pay a $3.86 dividend to shareholders. DFB will retain $1.89 per share of its earnings to reinvest in new projects that have an expected return of 15.3% per year. If DFB maintain..

Construct a detailed variable-costing income statement : Provide the information as requested below the table and construct a detailed Variable-Costing Income Statement for the period covered.

Describe the population and the sample in this study : Identify the main purpose(s) of this study as exploratory, descriptive, explanatory, or applied. Describe the population and the sample in this study. Is the population a cohort

The student said they enrolled late : In the sentence "The student said they enrolled late." From a purely grammatical standpoint, the usage is surprising. Why? How many DETERMINERS are found in the following sentence? "If neither team gets any points in the next five minutes, then offic..

Remember to use the half-year rule : 1. Given initial investment of $500,000, project life of 5 years, salvage of $50,000, CCA rate of 20%, tax rate of 40%, and required return of 15%, what is the undepreciated cost of capital at the end of Year 3? Remember to use the half-year rule

User Account

All Pages