Deck 23: Sustainable Growth Model

Question 1

A firm had earnings per share of $3.25 for the year.The book value per share at the beginning of the year was $13.The firm paid out $.975 in dividends per share at the end of the year.If the rate of return on book value remains constant from year to year,what will the earnings per share be for the following year?

A)$7.50
B)$3.82
C)$4.23
D)$5.53
E)$3.25

Answer 1

B

Question 2

A firm had earnings per share of $3.25 for the year.The book value per share at the beginning of the year was $13.If the firm paid out $.975 in dividends per share at the end of the year,how much will the book value per share be at the end of the year?

A)$16.25
B)$13.975
C)$15.275
D)$4.225
E)$12.025

Answer 2

C

Question 3

The sustainable growth model is appropriate for highly cyclical firms.

Answer 3

False

Question 4

The sustainable growth model is appropriate for firms that exhibit a constant pattern of growth and reinvestment.

Question 5

A firm had earnings per share of $3.25 for the year.The book value per share at the beginning of the year was $13.If the firm paid out $.975 in dividends per share at the end of the year,what is the retention ratio for the firm?

A)33.33%
B)30%
C)7.5%
D)75%
E)70%

Question 6

A firm had earnings per share of $3.25 for the year.The book value per share at the beginning of the year was $13.What was the firm's return on equity for the year?

A)25%
B)20%
C)42.25%
D)75%
E)40%

Question 7

Based on the sustainable growth model,an increase in the dividend payout ratio (1 - the retention ratio)will increase the growth in earnings per share in the future.

Question 8

Based on the sustainable growth model,a decrease in the dividend payout ratio (1 - the retention ratio)will increase the growth in earnings per share in the future.

Question 9

A firm had earnings per share of $3.25 for the year.The book value per share at the beginning of the year was $13.The firm paid out $.975 in dividends per share at the end of the year.If the rate of return on book value remains constant from year to year,and the firm maintains the same earnings retention ratio,what will the sustainable growth rate be for the foreseeable future?

A)35.7%
B)7.5%
C)8.3%
D)17.5%
E)25%