The growth rate of equity earnings without external financing is equal to which of the following?
A) Retention rate plus return on equity.
B) Retention rate minus return on equity.
C) Retention rate divided by return on equity.
D) Retention rate times return on equity.
E) Return on equity divided by retention rate.

Question

Quizplus · Accepted Answer

The growth rate of equity earnings without external financing is equal to the product of retention rate and return on equity. This is because the retention rate represents the portion of earnings that is retained in the company for growth, while return on equity measures the profitability generated from the equity invested in the company. Therefore, multiplying the two gives the rate at which equity earnings are growing without the need for external financing.

The Growth Rate of Equity Earnings Without External Financing Is