What should be the optimum Dividend pay-out ratio, when r = 15% & Ke = 12%:a.100%b.50%c.Zerod.None of the above.
Question
Solution 1
The optimum dividend payout ratio can be calculated using the Gordon's Model formula:
Payout Ratio = (Ke - r) / Ke
Where: Ke = Cost of Equity r = Rate of Return
Substituting the given values:
Payout Ratio = (12% - 15%) / 12% = -25%
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