One Common Method of Estimating the Growth Rate of Dividends

question 94

Multiple Choice

One common method of estimating the growth rate of dividends is to

• A) multiply the return on equity by the dividend payout ratio.
• B) randomly assign an annual growth rate of 4% to the latest dividend amount.
• C) multiply the return on equity by the firm's retention rate.
• D) multiply the return on assets by the dividend payout ratio.

---

Definitions:

Section 1245 Gain

A tax term referring to the gain from the sale or disposal of certain types of depreciable property, where the gain is recaptured as ordinary income.

Ordinary Income

Refers to the type of income earned by an individual that is subject to standard tax rates, including wages, salaries, commissions, and income from interest or dividends.

Long-Term Capital Losses

Losses incurred from selling assets that have been held for over a year, which can be applied to counterbalance capital gains when calculating taxes.

Short-Term Capital Gains

Profits from the sale of an asset held for one year or less, typically taxed at higher rates than long-term capital gains.