? Question Help | (Measuring growth) Given that a firm\'s return on equity is 15

Question

? Question Help | (Measuring growth) Given that a firm's return on equity is 15 percent and management plans to retain 37 percent of earnings for investment purposes, what will be the firm's growth rate? If the firm decides to increase its retention rate, what will happen to the value of its common stock? The firm's growth rate will be Dk (Round to two decimal places ) a. b. If the firm decides to increase its retention ratio, what will happen to the value of its common stock? (Select from the drop-down menus.) An increase in the retention rate will turn will the rate of growth in dividends, which in V the value of the common stock 2 Enter your answer in the answer box

Explanation / Answer

a). g = ROE x Retention Ratio

= 15% x 37% = 5.55%

b). An increase in retention ratio will increase the rate of growth in dividends, which in turn will increase the value of the common stock.

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.