Let me know what you guys make of this question its got me a little confused
A company currently has a required return on equity of 14% and an ROE of 12%. All else equal, if there is an increase in a firm’s dividend payout ratio, the stock's value will most likely:
A) increase.
B) either increase or decrease.
C) decrease.
The answer is A in Qbank, but I thought it would be C since the growth rate decreases, decreasing the denominator.
I'm sure I'm just not grasping something easy but an explanation would be greatly appreciated.
Thanks in advance |