Ocean Co.just paid a dividend of $2 per share out of earnings of $4 per share.If the book value per share is $25,what is the expected growth rate in dividends (g)?

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Quizplus · Accepted Answer

The expected growth rate in dividends (g) can be calculated using the formula: g = ROE * retention ratio. The retention ratio is the portion of earnings not paid out as dividends, which is (4 - 2) / 4 = 0.5. The ROE (Return on Equity) is earnings per share divided by book value per share, which is 4 / 25 = 0.16. Therefore, g = 0.16 * 0.5 = 0.08 or 8%.

Ocean Cojust Paid a Dividend of $2 Per Share Out of of Earnings