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Homework answers / question archive / A given firm predicts that under its current retention rate of 10% its net income would increase by 1% in a year-over-year basis
A given firm predicts that under its current retention rate of 10% its net income would increase by 1% in a year-over-year basis. what would have to be the retention rate so that this firm could grow its net income 5% in a year-over-year basis?
A 100%
B 75%
C 10%
D. 25%
E 50%
Under the 10% retention rate; its net income would increase by 1% in a year-over-year basis
Therefore for firm could grow its net income 5% in a year-over-year basis or 5% in a year-over-year basis increase in net income;
Retention rate = (10%/1%) * 5%
= 50%
Therefore, correct answer is option E. 50%
