Question

Q1. Johnson Products earned $2.80 per share last year and paid a $1.25 per share dividend....

Q1. Johnson Products earned $2.80 per share last year and paid a $1.25 per share dividend. If ROE was 14 percent, what is the sustainable growth rate?

Q2. Joker stock has a sustainable growth rate of 8 percent, ROE of 14 percent, and dividends per share of $1.65. If the P/E ratio is 19, what is the value of a share of stock?

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Answer #1

Sustainable Growth Rate (SGR) = ROE * (1 - Dividend Payout ratio)

Dividend Payout Ratio = Dividend per share/Earningsper share

Q.1

By formula, SGR = 14% * (1 - 1.25/2.80) = 7.75%

Q.2

P/E = 19

Price per Share/Earning per Share = 19

E= P/19

Puting it in SGR formula,

P = $73.15

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