I thought I simply divided the annual rate of 14% by return on equity 22% and ca
ID: 2398967 • Letter: I
Question
I thought I simply divided the annual rate of 14% by return on equity 22% and came to am answer of 0.636 or 64% and the system is telling me that's wrong. please and thank you!
An all-equity-financed firm plans to grow at an annual rate of at least 14%. Its return on equity is 22% what is the maximum possible dividend payout rate the firm can maintain without resorting to additional equity issues? (Do not round intermediate calculations. Enter your answer es a percent rounded to 1 decimal place.) Maximum dividend payout ratio 0 61%Explanation / Answer
Plowback ratio = Dividend Growth Rate/ROE
= 14%/22%
= 0.6364
Maximum Dividend Payout Ratio = 1- Plowback ratio
= 1 - 0.6364
= 0.3636 or 36.4 %