Given a company has a 10% ROE this year and expected ROE for next year is...
Given a company has a 10% ROE this year and expected ROE for next year is 12% (on both old and new projects). And the company has a payout ratio of 80%.
Question: what will the firm's growth in earning be in next year?.
I got an answer of 22.4% which seems a bit too large. Did I make any mistake?
Homework Answers
rate positively .. let me know if you need any clarification..
| Given that - | ||||
| ROE = | 12% | |||
| Payout ratio = | 80% | |||
| Retention ratio = (1-payout ratio) | ||||
| =1-80% | 20% | |||
| Growth rate = ROE*retention ratio | ||||
| 12%*20% | ||||
| 2.4% | ||||
| Ans = | 2.4% |
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