Reading 40: Discounted Dividend Valuation-LOS o, (Part 1) 习 growth, div, center, company, interpret

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Session 11: Equity Valuation: Industry and Company Analysis in a Global Context
Reading 40: Discounted Dividend Valuation

LOS o, (Part 1): Define, calculate, and interpret the sustainable growth rate of a company and explain the calculation’s underlying assumptions.

 

 

 

Supergro has current dividends of $1, current earnings of $3, and a return on equity of 16%, what is its sustainable growth rate?

A) 12.2%.

B) 10.7%.

C) 8.9%.

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g = (1 – 1/3)(0.16) = 0.107

[此贴子已经被作者于2010-4-19 11:37:58编辑过]

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Dynamite, Inc., has current earnings of $26, current dividend of $2, and a returned on equity of 18%. What is its sustainable growth?

A) 14.99%.

B) 13.37%.

C) 16.62%.

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g = [1 ? ($2 / $26)]0.18 = 16.62%

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In computing the sustainable growth rate of a firm, the earnings retention rate is equal to:

A) 1 ? (dividends / earnings).

B) Dividends / required rate of return.

C) 1 ? (dividends / assets).

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Earnings retention rate = 1 ? (dividends / earnings).

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The sustainable growth rate, g, equals:

A) pretax margin divided by working capital.

B) dividend payout rate times the return on assets.

C) earnings retention rate times the return on equity.

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The formula for sustainable growth is: g = b × ROE, where g = sustainable growth, b = the earnings retention rate, and ROE equals return on equity.

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Sustainable growth is the rate that earnings can grow:

A) without additional purchase of equipment.

B) indefinitely without altering the firm's capital structure.

C) with the current assets.

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Sustainable growth is the rate of earnings growth that can be maintained indefinitely without the addition of new equity capital.

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GreenGrow, Inc., has current dividends of $2.00, current earnings of $4.00 and a return on equity of 16%. What is GreenGrow’s sustainable growth rate?

A) 9%.

B) 8%.

C) 6%.

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GreenGrow’s sustainable growth rate is 8%.

g = [1 – ($2/$4)](0.16) = 8%