A Firm That Has an ROE of 12% Is Considering

question 34

Multiple Choice

A firm that has an ROE of 12% is considering cutting its dividend payout. The shareholders of the firm desire a dividend yield of 4% and a capital gain yield of 9%. Given this information, which of the following statement(s) is/are correct?
I. All else equal, the firm's growth rate will accelerate after the payout change.
II. All else equal, the firm's share price will go up after the payout change.
III. All else equal, the firm's P/E ratio will increase after the payout change.

• A)I only
• B)I and II only
• C)II and III only
• D)I, II and III

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Definitions:

Rejection Region

In hypothesis testing, the set of values that leads to the rejection of the null hypothesis in favor of the alternative hypothesis.

Kruskal-Wallis Test

A nonparametric statistical test used to compare three or more groups based on ranked data.

Wilcoxon Rank Sum Test

A nonparametric test that determines whether two independent samples come from the same distribution by comparing their ranks.

Population Location

Refers to the geographical distribution of members of a population across different areas.