Sorry if this has been posted before, I checked but couldn’t find anything. Page 417 in CFAI Equity question 18 Did anyone notice that Emerald’s dividend policy isn’t stated? I think this might be an error.
it starts on p.415, they say the long-term expected dividend payout rate is 0.2 and roe is 0.1 -> hence 0.08=g
I get that part SSS, but the point that it could be 0.08 _or higher_ is what bothers me. For Holt (not Emerald), it says the dividend payout rate won’t exceed free cash flow, so growth rate will be at least 8% - it doesn’t say anything about Emerald being the same case
The sentence was applicable for Holt and not for Emerald. So looks fishy.
i actually went through all the equity problems yesterday and felt fishy about this question too, but i think i may have come up with a way to rationalize it: in order to meet the 8% long-term dividend growth target, FCFE would have to grow _at least_ at 8%, just to keep up- otherwise the dividend will end up overtaking FCFE, hence the “8% or higher” the question asks which FCFE growth is most consistent with the assumptions made, and “8% or higher” seems the most appropriate with an 8% long-term growth in dividends