LOS o, (Part 2): Demonstrate the use of the DuPont analysis of return on equity in conjunction with the sustainable growth rate expression.

Q1. If a firm has a return on equity of 15%, a current dividend of $1.00, and a sustainable growth rate of 9%, what are the firm’s current earnings?

A)   $1.50.

B)   $1.75.

C)   $2.50.

Q2. Supergro has current dividends of $1, current earnings of $3, and a sustainable growth rate of 10%. What is Supergro’s return on equity?

A)   12%.

B)   20%.

C)   15%.

Q3. If Cantel, Inc., has current earnings of $17, dividends of $3.50, and a sustainable growth rate of 11%, what is its return on equity (ROE)?

A)   17.64%.

B)   13.85%.

C)   11.91%.

LOS o, (Part 2): Demonstrate the use of the DuPont analysis of return on equity in conjunction with the sustainable growth rate expression. fficeffice" />

Q1. If a firm has a return on equity of 15%, a current dividend of $1.00, and a sustainable growth rate of 9%, what are the firm’s current earnings?

A)   $1.50.

B)   $1.75.

C)   $2.50.

Correct answer is C)

The earnings can be determined by solving for earnings in the sustainable growth formula:

9% = [1 ? ($1 / $Earnings)] × 0.15 or $1 / 0.4 = $Earnings = $2.50

Q2. Supergro has current dividends of $1, current earnings of $3, and a sustainable growth rate of 10%. What is Supergro’s return on equity?

A)   12%.

B)   20%.

C)   15%.

Correct answer is C)

The ROE for Supergro can be determined by solving for ROE in the sustainable growth formula:

ROE = 10% / [1 – ($1/$3)] = 15%

Q3. If Cantel, Inc., has current earnings of $17, dividends of $3.50, and a sustainable growth rate of 11%, what is its return on equity (ROE)?

A)   17.64%.

B)   13.85%.

C)   11.91%.

Correct answer is B)       

Cantel’s ROE is 13.85%:

ROE = 11% / [1 – ($3.50/$17.00)] = 13.85%

thanks a lot