Question

You expect KT industries​ (KTI) will have earnings per share of $ 3 this year and expect that they will pay out $ 2.25 of these earnings to shareholders in the form of a dividend. ​ KATIE's return on new investments is 16​% and their equity cost of capital is 15​%. The expected growth rate for​ KTIs dividends is closest​ to:

Answer 1

4%

Step-by-step explanation:

the growth rate (g) = retention rate (the amount of net income that the company keeps in order to grow, and therefore, does not distribute to stockholders) x ROI (return on investments)

• retention rate = ($3 - $2.25) / $3 = 0.25
• ROI = 16%

g = 0.25 x 16% = 4%