Question

Big auto has an roe of 8.6%. its earnings per share are $0.97, and its dividends per share are $0.37. estimate big auto’s growth rate.

Answer 1

To estimate Big Auto's growth rate, we can use the formula: ROE = (Earnings per Share / Book Value per Share) x (1 + Growth Rate).

Step-by-step explanation:

To estimate Big Auto's growth rate, we can use the formula: ROE = (Earnings per Share / Book Value per Share) x (1 + Growth Rate). We are given that the ROE is 8.6% and the Earnings per Share is $0.97. We can calculate the Book Value per Share by dividing the Earnings per Share by the ROE:

Book Value per Share = Earnings per Share / ROE = $0.97 / 0.086 = $11.2791

Next, we rearrange the formula to solve for the Growth Rate:

Growth Rate = (ROE / Book Value per Share) - 1 = (0.086 / 11.2791) - 1 = 0.0076 or 0.76%

Therefore, Big Auto's estimated growth rate is 0.76%.