High Speed Company has an expected ROE of 15%.The dividend growth rate will be ________ if the firm follows a policy of paying 50% of earnings in the form of dividends.

Question

Quizplus · Accepted Answer

The dividend growth rate can be calculated using the formula: retention ratio x ROE = dividend growth rate. Here, the retention ratio is (1 - payout ratio) = (1 - 0.5) = 0.5. Therefore, dividend growth rate = 0.5 x 15% = 7.5%. Thus, the best choice is C.

High Speed Company Has an Expected ROE of 15