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Question
In: Finance
You have run a regression of payout ratios against expected growth and risk (beta) for all companies in the market and arrived at the following equation:
You have run a regression of payout ratios against expected growth and risk (beta) for all companies in the market and arrived at the following equation:
Payout ratio = 0.80 1.2 (Expected growth) - .25 (Beta)
Using this regression, estimate the payout ratio for a firm with an expected growth rate of 20% and a beta of 1.2.
a. 0%
b. 26%
c. 50%
d. 56%
e. 80%
Solutions
Expert Solution
The option "(b) = 26%" is right option.
Explanation:
Payout ratio = .80 - 1.2*Expected growth - 0.25*Beta
Expected growth = .20
Beta = 1.2
Payout = 0.80 - 1.2*.20 - .25*1.2
=. .80-.24-.3
= .26 or 26%
Hence, the option (b) Payout ratio = 26%, is right option.
Payout ratio = 26%
Junaid answered 2 years agoRelated Solutions
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Company
P/E Ratio
Growth rate
Beta
Payout
BOE
17.3
3.50%
1.1
28%
GD
15.5
11.50%
1.25
40%
GMH
16.5
13.00%
0.85
41%
GRU
11.4
10.50%
0.8
37%
LK
10.2
9.50%
0.85
37%
LG
12.4
14.00%
0.85
11%
LR
13.3
16.50%
0.75
23%
MM
11
8.00%
0.85
22%
MD
22.6
13.00%
1.15
37%
NR
9.5
9.00%
1.05
47%
RY
12.1
9.50%
0.75...
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