Which of the following would NOT result in higher dividend growth rates? A) Lower financial leverage. B) Higher retention ratios. C) Lower asset use compared to sales
Why the correct answer is A ?
Div growth rate = g = b x ROE A) If lower financial leverage, then D/E decreases, which means E increases, which means ROE decreases, so g is lower B) If higher retention ratios, then b increases, so g is higher C) If lower asset use compared to sales, then A decreases, and since A-L=E then E decreases, which means ROE increases, so g is higher
Ah i was wondering the answer too. Tks for the explanation
bidder, TKVM !