Acme Consolidated has a return on equity of 12%.If Acme distributes 60% of earnings as dividends,its expected growth rate will be
A)new 4.80%.
B)7.20%.
C)12%.
D)6%.

Question

Quizplus · Accepted Answer

The correct answer is A because the expected growth rate is equal to the return on equity multiplied by the retention ratio. In this case, the return on equity is 12% and the retention ratio is 40% (100% - 60%). Therefore, the expected growth rate is 12% x 40% = 4.80%.

Acme Consolidated Has a Return on Equity of 12