If a Firm Pays Out 30% of Its Earnings as Dividends

question 97

Multiple Choice

If a firm pays out 30% 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)20.0%.
• E)none of the above.

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Definitions:

Statement

A formal account or declaration of financial position or transactions, or a declaration of facts or opinions.

Company

A legal entity formed by individuals, stockholders, or shareholders, with the purpose of operating for profit, engaging in commercial and industrial activities.

Straight-Line Amortization

A method of allocating the cost of an intangible asset evenly over its useful life.

Bond Payable

A long-term liability account that represents the amount a company owes to bondholders, to be repaid at a future date.