Question

You expect KT Industries (KTI) will have earnings per share of $3 this year and expect that they will pay out $1.50 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 15% and their equity cost of capital is 12% The expected growth rate for KTI's dividends is:_________

a. $12.50
b. ​$39.25
c. ​$33.35
d. ​$20.00

Answer 1

Growth rate = 7.50%

Step-by-step explanation:

Given:

Return on investment = 15%

Retention ratio = [1.5 / 3] 100 = 50%

Find:

Growth rate

Computation:

Growth rate = Return on investment*Retention ratio

Growth rate = 15% x 50%

Growth rate = 7.50%