A firm maintains a constant dividend payout ratio of .45. What is the plowback ratio?
A)1 + .45
B)1 − .45
C)1 × .45
D)1 / .45
E).45

Question

Quizplus · Accepted Answer

The plowback ratio, also known as the retention ratio, is the portion of earnings that is reinvested in the company rather than paid out as dividends. It is calculated as (1 - dividend payout ratio). 
In this case, the dividend payout ratio is .45, so the plowback ratio is (1 - .45) = .55. 
Therefore, the correct answer is B) 1 - .45.

A Firm Maintains a Constant Dividend Payout Ratio of