​DFB, Inc. expects earnings next year of $4.81 per​ share, and it plans to pay a $2.96 dividend to shareholders​ (assume

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​DFB, Inc. expects earnings next year of $4.81 per​ share,
and it plans to pay a $2.96 dividend to shareholders​ (assume
that is one year from​ now). DFB will retain $1.85 per share
of its earnings to reinvest in new projects that have an expected
return of 14.3% 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. 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 11.8%​, what price
would you estimate for DFB​ stock?
c. Suppose instead that DFB paid a dividend of $3.96 per share
at the end of this year and retained only $0.85 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?