Homework Answers
Return on equity = (PM)(TAT)(EM)
Return on equity = (.052)(3.40)(1.30)
Return on equity = 0.2298 or 22.98%
Plowback ratio = 1 - Dividend payout ratio
Plowback ratio = 1 - 0.35
Plowback ratio = 0.65
Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]
Sustainable growth rate = [.2298(.65)] / [1 – .2298(.65)]
Sustainable growth rate = 0.1756, or 17.56%
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