X company earns INR 5 per share and is capitalised at a rate of 10 percent. If the rate of return on…
The optimum payout ratio is 0% because the investment return of 18% exceeds the capitalisation rate of 10%. Under the growth-firm interpretation of Gordon's dividend model,…
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X company earns INR 5 per share and is capitalised at a rate of 10 percent. If the rate of return on investments is 18 percent, the optimum pay out ratio according to Gordon is :
Answer and explanation
Correct answer D
The optimum payout ratio is 0% because the investment return of 18% exceeds the capitalisation rate of 10%. Under the growth-firm interpretation of Gordon's dividend model, retaining earnings for reinvestment is preferable to distributing them.
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Maharashtra and Goa SET (MH SET)