The growth rate of equity earnings without external financing is equal to
A) Retention rate plus return on equity.
B) Retention rate minus return on equity.
C) Retention rate divided by return on equity.
D) Retention rate times return on equity.
E) Return on equity divided by retention rate.

Question

Quizplus · Accepted Answer

The growth rate of equity earnings without external financing is equal to the retention rate times return on equity, as the company is reinvesting a portion of its earnings (retention rate) and earning a return on its equity. Therefore, the formula is: Growth rate = Retention rate * Return on equity. Choice D matches this formula.

The Growth Rate of Equity Earnings Without External Financing Is