QBank Equities Question something, currently, question, increase, decrease

hardwork24

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