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A company wants to implement a capital growth policy. In the current year it has 20...

A company wants to implement a capital growth policy. In the current year it has 20 millions in net income. How much income should it distribute in dividend in order to pursue this strategy
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Answer #1

A capital growth policy seeks to maximize the return to shareholders. The ultimate objective is to maximize shareholder wealth.

Assuming that the company can earn higher rates of return on equity than shareholders, the company should re-invest all the earnings. The logic is that since the company can earn higher returns, the income should be reinvested by the company rather than distributed to shareholders in the form of dividend.

Therefore, the company should not distribute any income and reinvest all the earnings

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