A company has reported $4 per share in earnings, and maintains a 50% dividend payout ratio....

Question

Question

A company has reported $4 per share in earnings, and maintains a 50% dividend payout ratio....

A company has reported $4 per share in earnings, and maintains a 50% dividend payout ratio. Its book value per share is $25. What is the expected growth rate in dividends?
1. 4%
2. 8%
3. 12%
4. 16%

business accounting

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Answer 1

Answer #1

Retention Ratio = 1 - Payout Ratio
Retention Ratio = 1 - 0.50
Retention Ratio = 0.50

Return on Equity = Earnings per share / Book Value per share
Return on Equity = $4.00 / $25.00
Return on Equity = 16.00%

Growth Rate = Return on Equity * Retention Ratio
Growth Rate = 16.00% * 0.50
Growth Rate = 8.00%

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Answer 2

Answer #2

$2 per share

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Answer 3

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