DFB. Inc. expects earnings next year of $4.16 per share, and it plans to pay a $1.83 dividend to shareholders (assume that is one year from now). DFB will retain
$2.23 per share of its eamings to reinvest in new projects that have an expected return of 14.3% per year. Suppose UPS 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 next dividend is due in one year.
a. What growth rate of earnings would you forecast for DFB‘? b. If DFB‘s equity cost of capital is 11.1%I what price would you estimate for UPS stock? 1:. Suppose instead that DFB paid a dividend of $2.83 per share at the end of this year and retained only $1 .28 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. It' DFB maintains this higher payout rate in the futureI what stock price would you estimate for the ﬁrm new?
Should DFB raise its dividend? a. What growth rate of earnings would you forecast for DFB?
DFB‘s growth rate ofeamings is 8.1 at. {Round to one decimal place.)
b. If DFB‘s equity cost of capital is 11.1%I what price would you estimate for UPS stock? If DFB's equity cost of capital is 11.1%I then DFB's stock price will he $:|. (Round to the nearest cent.)