Miami Book Publishers (MBP) just reported earnings of $20 million, and it plans to retain 35...
Miami Book Publishers (MBP) just reported earnings of $20 million, and it plans to retain 35 percent of its earnings. If MBP’s historical return on equity (ROE) was 15 percent, what is the expected growth rate for MBP’s earnings?
Homework Answers
Expected growth rate = ROE*retention ratio
The retention ratio is the percentage of net income that is retained by the company to fund future growth.
ROE=0.15
retention ratio=.35
So,
g = .15 * (.35)
g = 5.25%
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