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Big Auto has an ROE of 8,6%
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
Expert Solution
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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