Stockholders of a firm expect a 12% growth rate on their stock. Management believes that ROE...

Stockholders of a firm expect a 12% growth rate on their stock. Management believes that ROE will be 12% for the next 5 years. Given this information, the firms dividend payout ratio (one minus plow back ratio) for this period is

A. 100%

B. 0%

C. between 0% and 50%

D. between 50% and 100%

Solutions

Expert Solution

Given,

Expected growth rate = 12%

ROE = 12%

Solution :-

Plowback ratio = Expected growth rate/ROE

= 12%/12% = 1

Dividend payout ratio = 1 - plowback ratio

= 1 - 1 = 0 or 0%

Option 'B' is correct.

jeff jeffy answered 2 years ago

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