A firm has an ROE of 15% and a debt-equity ratio of 40%.If it wishes to grow by 9% a year without external financing,what is the maximum proportion of earnings that it can pay out?

Name: A firm has an ROE of 15% and a debt-equity ratio of 40%.If it wishes to grow by 9% a year without external financing,what is the maximum proportion of earnings that it can pay out?
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Question

Quizplus · Accepted Answer

IG = 0.09 = (1 − Payout) × 0.15 × 1 / (1 + 0.40); Payout = 0.16, or 16%

A Firm Has an ROE of 15% and a Debt-Equity