What Effect on the Growth Rate of Earnings Can Be

Multiple Choice

What effect on the growth rate of earnings can be accomplished by decreasing the dividend payout ratio from 70% to 40% if the firm has an ROE of 20%?

A) The growth rate can increase from 6% to 10.5%.
B) The growth rate can increase from 6% to 12%.
C) The growth rate can increase from 8% to 14%.
D) The growth rate can increase from 11% to 14%.