Which of the following statements about the equity growth rate is correct?
I. the higher the ROCE the higher equity growth rate, all other things equal
II. the higher the dividend payout the higher the equity growth rate
III. the equity growth rate is unaffected by the cost of debt
IV. the equity growth rate indicates the expected growth in stock price each period

Question

Quizplus · Accepted Answer

The equity growth rate is determined by the ROCE and the retention ratio. The higher the ROCE, the higher the equity growth rate. The higher the dividend payout, the lower the retention ratio and the lower the equity growth rate. The cost of debt does not affect the equity growth rate. The equity growth rate does not indicate the expected growth in stock price each period.

Which of the Following Statements About the Equity Growth Rate