Homework Answers
| answer a | |||||||||||||
| Growth rate = Retention ratio * return on equity | |||||||||||||
| Growth rate = 22%*37% | 8.14% | ||||||||||||
| answer b | If firm decide to increase retention ratio growth rate will increase which will lead to increase in share price | ||||||||||||
| An increase in retention rate will Increase the rate of growth in dividend , which will in turn increase the value of common stock | |||||||||||||
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