If a Firm Pays Out 20% of Its Earnings as Dividends

question 2

Multiple Choice

If a firm pays out 20% of its earnings as dividends and has averaged a 20 percent return on equity, how quickly can the firm grow while maintaining a constant debt to equity mix?

• A) 6.4%.
• B) 10.2%.
• C) 16.3%.
• D) 19.0%.

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Definitions:

Independent

In statistical analysis, this term describes variables that are not affected by changes in other variables.

Equivalent

A term used to indicate two items, systems, or quantities that are the same or have identical value or function.

Conditional Probability

The likelihood of an event occurring given that another event has already occurred.

Marginal Probability

The likelihood of an event occurring, irrespective of the outcomes of other variables.