Gagliardi Way Corporation has an expected ROE of 15%. If it pays out 30% of its earnings as dividends, its dividend growth rate will be ________.

Name: Gagliardi Way Corporation has an expected ROE of 15%. If it pays out 30% of its earnings as dividends, its dividend growth rate will be ________.
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Question

Quizplus · Accepted Answer

We can use the Gordon growth model to find the dividend growth rate:

g = (1 - payout ratio) * ROE
g = (1 - 0.3) * 0.15
g = 0.105 or 10.5%

Therefore, the answer is B.

Gagliardi Way Corporation Has an Expected ROE of 15