Which of the following is not necessarily true for a firm with a payout ratio of .15 and ROE of 20%?
A) It reinvests 85% of its earnings back into the firm.
B) The firm's retained earnings will increase the book value of equity by 17%.
C) It pays a dividend of 15 cents per share.
D) The firm's earnings and equity will grow by 17% per year.

Question

Quizplus · Accepted Answer

The payout ratio of 0.15 means the firm pays out 15% of its earnings as dividends, but this does not necessarily mean it pays 15 cents per share, as the actual dividend per share depends on the earnings per share.

Which of the Following Is Not Necessarily True for a Firm