Zoom Corp 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.
A) 3.0%
B) 4.8%
C) 7.5%
D) 6.0%

Question

Quizplus · Accepted Answer

The dividend growth rate can be calculated using the formula for sustainable growth rate: g = ROE * (1 - dividend payout ratio). Here, ROE = 15% and the dividend payout ratio = 50% or 0.5. Thus, g = 0.15 * (1 - 0.5) = 0.075 or 7.5%.

Zoom Corp Has an Expected ROE of 15