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29 June, 08:52

Dishwasher's Delights plows back 70.00% of its earnings to take on projects that earn the firm a rate of return of 14.00%. Dishwasher's stockholders require a return of 13.50% on their common stock. Earnings per share are expected to be $6.00 next year. a. What is the expected growth rate for Dishwasher's common stock?

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Answers (2)
  1. 29 June, 11:00
    0
    The growth rate in dishwashers common stock is 9.8%

    Explanation:

    The growth rate can be calculated by multiplying the company's ROE by the Retention Ratio commonly denoted as b

    The retention ratio is given as 70% (plow back)

    And we are told that the firm earns 14 % from projects taken using earnings

    g = ROE * b

    = 14% * 70%

    =9.8%
  2. 29 June, 12:22
    0
    = 9.80%

    Explanation:

    Plowback ratio fundamental analysis ratio that measures how much earnings are retained after dividends are paid out.

    The expected growth rate equals the return on equity times the plowback ratio:

    We can use the relationship g = ROE * b to find the plowback ratio.

    = 14.00% * 0.70 = 9.80%
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