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Old 03-15-2016, 11:04 AM
Amoroso Amoroso is offline
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Unhappy Calculating ROE given dividend growth rate and payout ratio

What is the return on equity for a firm that has a constant dividend growth rate of 7% and a dividend payout ratio of 60%?


The answer is 11.67%.

Could anyone tell me the steps for this?

Thank you so much in advance.
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Old 05-20-2016, 08:03 PM
mumbo mumbo is offline
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Default Re: Calculating ROE given dividend growth rate and payout ratio

Growth Rate = Return on Equity x Plowback Ratio

Plowback Ratio = 1 - Payback Ratio
= 1 - 0.6
= 0.4

Growth Rate = 0.07

Return on Equity = ROE

0.07=ROE x 0.4

0.07/0.4 = ROE = 0.175 = 17.5%

That's my working, maybe the answer is wrong?
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