Question

Thomas, Inc.'s return on equity is 12 12 percent and management has plans to retain 24 24 percent of earnings for investment in the company. a.  What will be the​ company's growth​ rate? b.  How would the growth rate change if management​ (i) increased retained earnings to 35 35 percent or​ (ii) decreased retention to 15 15 ​percent? a.  The​ company's growth rate will be 2.88 2.88 ​%. ​(Round to two decimal​ places.) b. ​(i) If management increased retained earnings to 35 35​%, the growth rate would be nothing ​%. ​(Round to two decimal​ places.)

Answer 1

We know that Growth rate=RoE*retention rate
1.
=12%*24%
=2.88%

2.
=12%*35%=4.20%
Growth rate would increase by 1.32%

3.
=12%*15%=1.80%
Growth rate would decrease by 1.08%