Question #120
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 48
Status: Unattempted
Question
Supergro has current dividends of $1, current earnings of $3, and a sustainable growth rate of 10%. What is Supergro's return on equity?
Answer Choices:
A. 20%
B. 12%
C. 15%
Explanation
The ROE for Supergro can be determined by solving for ROE in the sustainable growth
formula:
ROE = 10% / [1 – ($1/$3)] = 15%