You expect KT Industries (KTI) will have earnings per share of $5 this year and expect that they will pay out $1.25 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13% and their equity cost of capital is 15%. The expected growth rate for KTI's dividends is closest to ________.
A) 11.3%
B) 9.8%
C) 5.9%
D) 3.9%

Question

Quizplus · Accepted Answer

B) g = Retention rate × Return on new investment
= ($5 - $1.25) / $5 × 0.13 = 0.0975 or 9.8%

You Expect KT Industries (KTI) Will Have Earnings Per Share