A firm had a net income of $100 per share last year, with a retention rate of 10%. In the first day of the current year, this firm is considering increasing its retention rate to 20%. This would reduce dividends in the short run and increase dividends in the longer run.
How long would it take for dividends to be higher under a 20% retention rate instead of a 10% retention rate? Assume ROE=10%

Answer rating: 100% (QA)

Solution To answer this question we need to use the retention ratio formula which is Retention Ratio ... View the full answer