Use the Following Information to Answer the Question(s)below

question 52

Multiple Choice

Use the following information to answer the question(s) below.
Wyatt Oil,an all-equity financed firm,has just reported EPS of $4.00 per share.Despite an economic downturn,Wyatt is confident regarding its current investment opportunities,but due to the current financial crisis,Wyatt does not wish to fund these investments externally.Wyatt's board has therefore decided to suspend its stock repurchase plan and cut its dividend to $1 per share (from its current level of $2 per share) and retain these funds instead.The firm just paid its current dividend of $1.00 per share and expects to keep its dividend at $1 per share next year as well.In subsequent years,it expects its growth opportunities to slow,and it will still be able to fund its growth internally with a target 40% dividend payout ratio,and reinitiating its stock repurchase plan for a total payout rate of 60%.All dividends and repurchases occur at the end of each year.
Wyatt's existing operations are expected to generate the current level of earnings per share in the future.Assume that the return on new investments is 16% and that reinvestments will account for all future earnings growth.Wyatt's current equity cost of capital is 12%.
-Wyatt's expected EPS in two years is closest to:

• A)$4.48.
• B)$4.64.
• C)$5.04.
• D)$5.38.

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Definitions:

Arthropods

A vast phylum that includes insects, arachnids, myriapods, and crustaceans, characterized by their exoskeleton, segmented bodies, and jointed appendages.

Median Plane

An anatomical reference plane that divides the body into equal left and right halves.

Frontal

Pertaining to the front part of something, especially the frontal bone or frontal lobe of the brain.

Transverse

Positioned or extending across something; crossing from side to side or perpendicular to the long axis.