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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