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:

Mnemonics

Memory aids or techniques that employ vivid imagery and organizational strategies to enhance the recall of information.

Conditioning

A process of behavior modification by which a subject comes to associate a desired behavior with a previously unrelated stimulus.

Effortful Processing

A form of memory encoding that necessitates focus and deliberate effort, unlike automatic processing.

Encoding

Encoding is the initial process of converting information into a form that can be stored in memory, involving the transformation of sensory input into a meaningful memory.