What Effect on the Growth Rate of Earnings Can Be

question 101

Multiple Choice

What effect on the growth rate of earnings can be accomplished by decreasing the dividend-payout ratio from 70% to 40% if the firm has an ROE of 20%?

• A)The growth rate can increase from 6% to 10.5%.
• B)The growth rate can increase from 6% to 12%.
• C)The growth rate can increase from 8% to 14%.
• D)The growth rate can increase from 11% to 14%. current growth rate in earnings = plowback ratio x ROE = .3 x .2 = 6%

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