Remember that the value of a firm with cost of equity R and dividend growth g is given by D(1)/(R-g), where D(1) is the dividend one year from now.

Consider a firm that had a net income NI(0)=100M last year. What would be the value of the firm under the retention rates of 20%, 40%, 60% and 80%? Assume R=20% and ROE=10%.

Answer rating: 100% (QA)

To calculate the value of the firm under different retention rates we need to determine the dividend ... View the full answer