In retention growth model, payout ratio is subtracted from one to calculate___________?
Correct answer: C. Retention ratio
- A. Present value ratio
- B. Future value ratio
- C. Retention ratio
- D. Growth ratio
Explanation
The retention ratio shows the proportion of earnings kept in the business, so it is calculated as 1 minus the payout ratio. The remaining earnings are retained for reinvestment and growth.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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