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Suppose 5 years have gone by and the company has to make a decision on how to move forward. It can either pay out all earnings as dividends without considering any growth opportunities or choose a growth
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Suppose 5 years have gone by and the company has to make a decision on how to move forward. It can either pay out all earnings as dividends without considering any growth opportunities or choose a growth strategy where the company will expand into new lines of business in global markets. If the management chooses this strategy, the payout ratio will be reduced down to 20% from 35%, and the company will be able to maintain a growth rate of 7% forever. Which strategy should the management choose to maximize shareholder value

User Jophy Job
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Answer:

The management should choose the growth strategy. It is always more rewarding and maximizes the shareholder value better than embarking on a payout strategy.

Step-by-step explanation:

Choosing a payout strategy, which does not ensure growth, is not sustainable and does not maximize shareholder value. Business expansion through market penetration, product development, market expansion, and diversification ensures business growth and maximizes shareholder wealth, enabling the company to pay out more in dividends stretched over longer streams.

User AAEM
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