Asked by Elias Montano on Apr 25, 2024
Verified
Mednas Corp has an expected ROE of 11%. The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends.
A) 3.0%
B) 4.8%
C) 8.25%
D) 9.0%
ROE
Stands for Return on Equity, a financial ratio that measures the profitability of a company in relation to shareholders' equity.
Dividend Growth Rate
The annualized percentage rate of growth of a company's dividend payouts, indicating the company's long-term earnings growth potential and financial health.
Earnings
Net income of a business entity over a set time frame, indicating its financial performance.
- Identify and calculate dividend growth rates based on plowback ratios and return on equity (ROE).
Verified Answer
SJ
Sarah Jones7 days ago
Final Answer :
C
Explanation :
The dividend growth rate can be calculated using the formula for sustainable growth rate: g = ROE * (1 - dividend payout ratio). Given an ROE of 11% and a dividend payout ratio of 25%, the growth rate would be 11% * (1 - 0.25) = 11% * 0.75 = 8.25%.
Learning Objectives
- Identify and calculate dividend growth rates based on plowback ratios and return on equity (ROE).