Dexter's has a fixed dividend payout ratio of 40 percent, current net income of $5,200, total assets of $56,400, and total equity of $21,600. Given this information, what estimate would you use as the dividend growth rate if the last dividend paid was $.464 per share?

Question

Business

Paula Hanna

13 April, 00:27

Dexter's has a fixed dividend payout ratio of 40 percent, current net income of $5,200, total assets of $56,400, and total equity of $21,600. Given this information, what estimate would you use as the dividend growth rate if the last dividend paid was $.464 per share?

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Answers (1)

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Sylvia Ryan · Answer 1

14.44%

Explanation:

Given:

Dividend payout ratio = 40%

Current net income = $ 5,200

Total equity = $ 21,600

thus,

value of the company = total equity = $ 21,600

Now,

The return on equity = (Net income of the company) / (value of company)

on substituting the respective values, we get

The return on equity = $ 5,200 / $ 21,600

or

The return on equity = 0.2407

also,

The growth rate = return on equity * (1 - payout ratio)

on substituting the respective values, we get

The growth rate = 0.2407 * (100% - 0.4%)

or

The growth rate = 0.2407 * 60% = 14.44%