Question #29
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 13
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
The sustainable growth rate, g, equals:
Answer Choices:
A. earnings retention rate times the return on equity
B. pretax margin divided by working capital
C. dividend payout rate times the return on assets
Explanation
The formula for sustainable growth is: g = b × ROE, where g = sustainable growth, b = the
earnings retention rate, and ROE equals return on equity.