Ocean Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends (g)?
A) 16%
B) 12%
C) 8%
D) 4%

Question

Quizplus · Accepted Answer

The expected growth rate in dividends (g) can be calculated using the formula: g = (1 - payout ratio) * ROE. The payout ratio is $2/$4 = 0.5. ROE is earnings/book value = $4/$25 = 0.16. Thus, g = (1 - 0.5) * 0.16 = 0.08 or 8%.

Ocean Co Has Paid a Dividend $2 Per Share Out of of Earnings