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John Moffat.
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- September 29, 2015 at 4:51 pm #274118
I am not clear on the calculation of the retention rate as solved in the bpp text.The question is:
There is a dividend yield of 3.8% and PE ratio of 15.3. What is the retention rate.
They solved it as follows :
retention rate = 1-0.038*15.3 =41.68%
May you please clarify why it was solved this way. I don’t understand.
September 30, 2015 at 6:47 am #274185You really need to use a bit of algebra 🙂
The retention rate = (E – D) / E = 1 – D/E
D = 0.038 x MV
PE = MV/E = 15.3, so E = MV / 15.3
So retention rate = 1 – ( 0.038MV / (MV / 15.3)) = 1 – (0.038 x 15.3)
September 30, 2015 at 2:37 pm #274250Thanks alot
October 1, 2015 at 7:24 am #274378You are welcome 🙂
October 6, 2015 at 4:44 pm #275213Anyundo please tell me the page number of bpp text
October 6, 2015 at 5:24 pm #275223I am puzzled why knowing the page number makes any difference whatsoever to the calculation 🙂
November 9, 2015 at 9:39 am #281244could you pls. advise which question is it, where the formula The retention rate = (E – D) / E come from?
November 10, 2015 at 8:35 am #281412I don’t know what you mean by which question.
The retention rate should not be learning a formula – it is basic Paper F3.
The amount retained is (earnings – dividend).
Therefore the retention rate = (earnings – dividend) as a percentage of the earnings.
November 10, 2015 at 9:55 am #281447Thanks John, it already answer my question
November 10, 2015 at 2:15 pm #281484You are welcome 🙂
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