Asked by Emilija Dancetovic on May 10, 2024
Verified
Zoom Corp has an expected ROE of 15%. The dividend growth rate will be ________ if the firm follows a policy of paying 50% of earnings in the form of dividends.
A) 3.0%
B) 4.8%
C) 7.5%
D) 6.0%
ROE
Equity Return, which is determined by dividing the net income by the equity of shareholders, is a method used to evaluate financial success.
Dividend Growth Rate
The annualized percentage rate of growth of a company's dividends, indicating how quickly a firm's dividend payments increase over time.
Earnings
The amount of net income that a company generates during a specific period, often used as an indicator of the company's financial health and profitability.
- Apprehend the effect of dividend policy on the growth rate of dividends and the assessment of a company's worth.
Verified Answer
BM
Brenda MancillaMay 16, 2024
Final Answer :
C
Explanation :
The dividend growth rate can be calculated using the formula for sustainable growth rate: g = ROE * (1 - dividend payout ratio). Here, ROE = 15% and the dividend payout ratio = 50% or 0.5. Thus, g = 0.15 * (1 - 0.5) = 0.075 or 7.5%.
Learning Objectives
- Apprehend the effect of dividend policy on the growth rate of dividends and the assessment of a company's worth.