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1. If eps is 100 at the end of this year and 140 at the end of next year what will the dps be the following year if the retention ratio is 60%?
40% growth so eps following year = 140 x 1.4 = 196. Retained is 60% so DPS is 196 x 40% = 78.4
But you have typed out the answer yourself, so say which bit of it is not clear to you and then I will explain 🙂
It is only using the formulae for earnings per share and dividend per share (which if you have forgotten from Paper FA (was F3) are revised in my free Paper FM lectures).
The earnings from this year to next year increase by 40/100 = 40%.
So if we assume that the earnings continue to grow at 40% per year, then in the following year they will be 140 + (40% x 140) = 196.
They are retaining 40% of their earnings, and do only the remaining 60% of the earnings will be paid as dividend. So the dividend will be 60% x 196 = 78.4
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