Given that a firm's return on equity is 24 percent and management plans to retain 45...

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Given that a firm's return on equity is 24 percent and management plans to retain 45...

Given that a firm's return on equity is 24 percent and management plans to retain 45 percent of earnings for investment purposes, what will be the firm's growth rate? If the firm decides its retention rate, what will happen to the value of its common stock? a. The firm's growth rate will be.

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Answer 1

Answer #1

a). Growth Rate = ROE * Retention Rate = 24% * 0.45 = 10.80%

b). If the firm decides to increase its retention rate, the value of its common stock will also increase.

P0 = D1 / [r - g]

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Answer 2

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