Kirkevue Industries Pays Out All Its Earnings as Dividends, Currently

question 18

Multiple Choice

Kirkevue Industries pays out all its earnings as dividends, currently expects earnings to be constant 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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