Net CorpHas an ROE of 30% and Would Like to See

question 54

Multiple Choice

Net Corp.has an ROE of 30% and would like to see earnings grow at a 18% annual rate.What percent of earnings can they afford to pay out as dividends?

• A)45%
• B)40%
• C)35%
• D)30% Growth in earnings = Plowback x ROE
• )18 = Plowback x .30
• )18/.30 = 60% = Plowback

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Definitions:

Price Elasticity

A metric that quantifies the sensitivity of the quantity of a product demanded to fluctuations in its price, depicted as a percentage alteration.

Production Costs

The total expenses incurred by a company to produce goods or services, including labor, materials, and overhead costs.

Cournot Duopolists

A scenario in an oligopoly market structure where two firms, known as duopolists, decide on the quantity to produce independently and simultaneously with the goal of maximizing profit.

Marginal Costs

The boost in cost necessitated by the output of one more unit of a product or service.