Calculation of Dividends and Earnings Per Share of McCormick Industries-Multiple Choice Question
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Question
McCormick Industries plans to pay a $4.00 dividend this year and you expect that the firm's earnings are on track to grow at 5% per year for the foreseeable future. McCormick’s equity cost of capital is 13%.
Suppose that McCormick decides to pay a dividend of only $2 per share this year and use the remaining $2 per share to repurchase stock. If Defenestration maintains this dividend and total payout rate, then the rate at which McCormick’s dividends and earnings per share are expected to grow is closest to:
A) 7%
B) 13%
C) 9%
D) 5%
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