A firm that has an ROE of 12% is considering cutting its dividend payout. The stockholders the firm desire a dividend yield of 4% and a capital gain yield of 9%. Given this information, which of the following statements is (are) correct? All else equal, the firm's growth rate will accelerate after the payout change. All else equal, the firm's stock price will go up after the payout change. All else equal, the firm's P/E ratio will increase after the payout change. a) I only b) I and II only c) II and III only d) I, II, and III

The correct answer is option (a)

Explanation:

From the given question below, we recall recall the following statements.

A firm has an ROE of =12%

In the firm  the stakeholders desire a dividend yield of=

A capital gain yield = 4%

Now,

If  it slashes it's dividend payout , the per share dividend will reduce with every  other conditions  remaining that will remain permanent, that will result in price decrease

For example :D(before change) =1 ,g=8% ,D(After change) :.80

Thus,

The  before Price : 1/(.12-.08)= $25

The price after :.80/(.12-.08)= $ 20 per share

so condition  II is not feasible

The condition  III:with will reduce  in price PE will also decrease

The condition or situation I:there will be a  change in dividend payout ,ratio of retention will increase as there will be in increase in growth rate.

For this therefore, The option a is correct

answer; /// i believe that the correct answer is (covenant;

answer; i believe that the correct answer is (d); the business benefits because owners can share responsibilities;