Toronto Skaters Co.has a return on equity of 8% and pays out 20% of its earnings in dividends.The expected growth in dividends is:

Name: Toronto Skaters Co.has a return on equity of 8% and pays out 20% of its earnings in dividends.The expected growth in dividends is:
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Question

Quizplus · Accepted Answer

The expected growth in dividends can be calculated using the formula: g = (1-payout ratio) x return on equity. 
In this case, g = (1-0.2) x 0.08 = 0.064 or 6.4%. Therefore, the best choice is B.