Kirkevue Industries Pays Out All Its Earnings as Dividends and Has

question 13

Multiple Choice

Kirkevue Industries pays out all its earnings as dividends 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%

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Definitions:

Temporary Decline

A short-term decrease in the value or performance of an asset or market, expected to recover over time.

Voting Common Stock

Shares that give the holder the right to vote on corporate matters.

Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues, indicating the company's financial performance over a specific period.