Kirkevue Industries pays out all its earnings as dividends, currently expects earnings to be constant and has a share price of $27. In order to expand, Kirkevue announces it will cut its dividend payments from $2.15 to $1.75 per share and reinvest the retained funds. What is the growth rate that should be achieved on the reinvested funds to keep the equity cost of capital unchanged?
A) 1.48%
B) 0.14%
C) 0.17%
D) 0.15%

Question

Quizplus · Accepted Answer

A) r_E1 = $2.15 / $27 = 11ea84dc_f564_161b_9a63_cd29b5c6b4c1_TB1316_11_TB1316_11 ; 11ea84dc_f564_3d2c_9a63_334aac241409_TB1316_11_TB1316_11 11ea84dc_f564_3d2d_9a63_ddc71c2faea1_TB1316_11_TB1316_11

Kirkevue Industries Pays Out All Its Earnings as Dividends, Currently