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Wilt's has earnings per share of $3.98 and dividends per share of $1.35. What is the firm's sustainable rate of growth if its return on assets is 14.6% and its return on equity is 12.2%?

Respuesta :

Answer: 8.05%

Explanation:

Given that,

Earnings per share (EPS) = $3.98

Dividends per share(DPS) = $1.35

Return on assets(ROA) = 14.6%

Return on equity(ROE) = 12.2%

Plowback Ratio = [tex]\frac{EPS - DPS}{EPS}[/tex]

                          = [tex]\frac{3.98 - 1.35}{3.98}[/tex]

                          = 0.66

Therefore,

sustainable rate of growth = ROE × Plowback Ratio

                                            = 12.2% × 0.66

                                            = 0.0805

                                            = 8.05%

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