Low Tech 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.
A)6.0%
B)4.8%
C)7.2%
D)3.0%
E)none of the above

Question

Quizplus · Accepted Answer

The dividend growth rate (g) can be calculated using the formula: g = ROE * (1 - payout ratio). Here, ROE = 10% and payout ratio = 40%, so g = 10% * (1 - 0.4) = 6.0%.

Low Tech Company Has an Expected ROE of 10