English Deutsch Français Italiano Español Português 繁體中文 Bahasa Indonesia Tiếng Việt ภาษาไทย
All categories

1. Return on equity.
2. The retention rate.
3. The payout ratio.
4. a) and b).
5. b) and c)

2007-10-14 14:28:15 · 2 answers · asked by Will B 1 in Business & Finance Investing

2 answers

Studying for a test?

Dividend growth is decided by the company's board of directors for whatever reasons they discuss and agree on in the board meeting. They don't have to declare dividends, much less increasing ones.

Microsoft was terrible about paying dividends until one day when Bill Gates decided he had all this cash in the company but it would be nice to shoo some toward his Bill and Melinda Gates Foundation. If it weren't good for his foundation at that moment, Microsoft wouldn't have bothered. Which answer is that? 6--None of the above.

Exxon had record earnings, and no clear direction as to where to put it, so they sent $9 billion back to the stockholders before Congress decided to tax it away. Which is that? None of the above, I expect.

Check your lecture notes again, that is what the prof. is looking for, what he told you.

2007-10-15 15:59:07 · answer #1 · answered by Rabbit 7 · 0 1

Looks like you're looking for an answer to a multi-choice assignment.

Technically, the whole question is a little screwed up, because retention rate = (1 - payout ratio), so if dividend growth is a function of the retention rate, then it should also be a function of the payout ratio, and vice versa.

Without giving the answer away, I will provide the following hints:
In academic finance, dividend growth will be based on earnings growth, and will equal earnings growth when the payout ratio (% earnings that will be paid out in dividends) is constant.
Earnings growth comes from having more "capital" to invest, which is invested back into the company.
Assume "capital" from external sources will not be used, so only source of funds used to reinvest into the company is from retained earnings
Assume the return that on the extra investments will be the same as the return that current equity achieves

Hopefully that helps.

2007-10-16 16:11:55 · answer #2 · answered by Eugene L 2 · 0 1

fedest.com, questions and answers