Agricultural Equipment Company has an expected ROE of 10%.The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends.

Question

Quizplus · Accepted Answer

The dividend growth rate can be calculated using the formula: Growth Rate = ROE * (1 - Dividend Payout Ratio). Here, ROE is 10% and the payout ratio is 40%, so the retention ratio is 60%. Thus, Growth Rate = 10% * 60% = 6.0%.

Agricultural Equipment Company Has an Expected ROE of 10