The explanation to this answer states that Emerald’s policy will not allow dividend growth to exceed FCFE growth, therefore FCFE growth should be equal to at least the growth in dividends.
I calculated the 8% sustainable dividend growth rate, and selected C as my answer but I can’t find the policy anywhere in the case study. Is this is an error in the book?
My reasoning for selecting C was that in order for the DDM to be valid dividends should be reflective of Emerald’s capacity to pay dividends therefore FCFE should grow at around the same rate as dividends. However I don’t see any mention of this policy.
Can anyone help.