Use the Information for the Question(s)below

question 70

Multiple Choice

Use the information for the question(s) below.
Defenestration Industries plans to pay a $4.00 dividend this year and you expect that the firm's earnings are on track to grow at 5% per year for the foreseeable future.Defenestration's equity cost of capital is 13%.
-Suppose that Defenestration decides to pay a dividend of only $2 per share this year and use the remaining $2 per share to repurchase stock.If Defenestration's payout rate remains constant,then Defenestration's stock price is closest to:

• A)$50.00.
• B)$22.25.
• C)$32.30.
• D)$30.75.

---

Definitions:

Expected Return

The predicted amount of profit or loss an investment generates based on historical performance or analyst forecasts.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield of government securities.

Market Risk

The possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets.

Specific Companies

Refers to individual firms or corporations identified by their unique characteristics, operations, or market activities.