Question

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%?

Answer 1

Answer: 8.05%

Step-by-step 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 =
`(EPS - DPS)/(EPS)`

=
`(3.98 - 1.35)/(3.98)`

= 0.66

Therefore,

sustainable rate of growth = ROE × Plowback Ratio

= 12.2% × 0.66

= 0.0805

= 8.05%