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RFK Limited expects earnings this year of $5.83 per​ share, andit plans to pay a...

RFK Limited expects earnings this year of $5.83 per​ share, and it plans to pay a $3.82 dividend to shareholders. RFK will retain $2.01 per share of its earnings to reinvest in new projects which have an expected return of 14.7% per year. Suppose RFK will maintain the same dividend payout​ rate, retention rate and return on new investments in the future and will not change its number of outstanding shares.  

a. What growth rate of earnings would you forecast for​ RFK?

b. If​ RFK's equity cost of capital is 11.2%​,what price would you estimate for RFK​ shares?

c. Suppose instead that RFK paid a dividend of $4.82 per share this year and retained only $1.01 per share in earnings. That​ is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If RFK maintains this higher payout rate in the​ future, what share price would you estimate for the firm​ now? Should RFK follow this new​ policy?

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