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.

Question

Quizplus · Accepted Answer

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%.

Mednas Corp Has an Expected ROE of 11