ABC CorpHas an ROE of 20 Percent and a Current Dividend-Payout

Multiple Choice

ABC Corp.has an ROE of 20 percent and a current dividend-payout ratio of 40 percent.Which of the following changes will allow their earnings to grow at a 15 percent rate?

A) A decrease in the dividend-payout ratio to 35 percent while holding ROE constant
B) A two-percentage-point decrease in ROE while holding dividend-payout ratio constant
C) A decrease in dividend-payout ratio to 25 percent while holding ROE constant
D) An increase in dividend payout ratio to 50 percent and an increase in ROE to 25 percent current earnings growth rate = plowback ratio x ROE
= ) 6 x .20 = 12%
Desired earnings growth rate = plowback ratio x ROE