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NEW QUESTION: 1
Holding all else equal, an decrease in which of the following will cause an increase in the theoretical growth rate of common stock dividends according to the Growth Rate of Dividends Model?
I. ROE
II. Payout ratio
III. Tax rate IV Preferred stock price
V. Discount rate
VI. Retention rate
A. None of these answers
B. III, II
C. I, III, IV
D. V, VI
E. II, V
F. II, IV
Answer: A
Explanation:
Explanation/Reference:
Explanation:
The equation used to determine the theoretical growth rate of common stock dividends is as follows:
{Annual growth rate = [ROE * (1 - dividend payout ratio)]}
As you can see, of the choices listed, only a decrease in the dividend payout ratio will cause an increase in the theoretical growth rate of common stock dividends.