Question

Which of the following is NOT an action company co-managers can take to boost a subpar ROE?

1. Decrease the dividend payment so as to boost the amount of earning retained in the business
2. Non of these
3. Strive to boost the company's net income
4. Use available cash (or perhaps borrow against the company’s line of credit) to repurchase shares of stock
5. Increase dividend payment so as to reduce the amount of net income retained in the business (retained earning act to increase equity investment and thus dampen ROE)

Answer 1

Increasing the dividend payment is not an action that typically boosts a subpar ROE, as it decreases net income retained, thus potentially reducing ROE.

Step-by-step explanation:

Among the actions that company co-managers can take to boost a subpar Return on Equity (ROE), increasing the dividend payment is NOT one that would typically achieve this goal. Increasing dividends would indeed reduce the amount of net income retained in the business, leading to lower retained earnings, which would, in turn, keep equity investment higher relative to net income, and thus have a potentially dampening effect on ROE. On the contrary, actions like decreasing dividend payments, striving to boost net income, and repurchasing shares are generally aimed at improving ROE by either strengthening earnings or reducing equity.