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




Correct A

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 !