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

question 17

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 do 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 current stock price is closest to:

• A) $51.23
• B) $54.00
• C) $57.38
• D) $61.38

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Definitions:

Systematic Bias

A consistent and pervasive error in judgment or procedure that leads to inaccurate conclusions or assessments, often resulting from a particular perspective or methodology.

Confirmation Bias

Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Principle Of Falsifiability

The principle that a scientific theory must make predictions that are specific enough to expose the theory to the possibility of disconfirmation; that is, the theory must predict not only what will happen but also what will not happen.

Denialism

The refusal to accept well-established facts or evidence, often in the context of scientific or historical truths.