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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.

Please explain in detail

pur-new-sol

Computation of Big Auto's Growth Rate:

Dividend Payout Rate = Dividends/Earnings per Share

= 0.37/0.97

=0.3814

Hence,

Plowback Ratio = 1-Dividend Payout Rate

=1-0.3814

=0.6186

Growth Rate = ROE*Plowback Ratio

= 8.6%*0.6186
Growth Rate = 5.32% (Approx).

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