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Suppose a firm has been earning a return on equity (ROE) of 17 percent and retaining 40 percent of its earnings (i.e. its dividend payout

Suppose a firm has been earning a return on equity (ROE) of 17 percent and retaining 40 percent of its earnings (i.e. its dividend payout ratio is 60 percent). If this situation is expected to continue indefinitely, what would be a reasonable estimate of g, the companys future growth rate in dividends?

a.

6.8%
b.

17.0%
c.

3.4%
d.

4.5%
e.

10.2%

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