WineMaster Ltd generated an EPS this year of $0.90 and paid a dividend of $0.30 per share.WineMaster has recently been able to generate a return of 7.75% p.a.on its (book)equity base.If these numbers are assumed to be fairly stable,what will be WineMaster's expected future growth rate?

Question

Quizplus · Accepted Answer

The formula for calculating the sustainable growth rate is (1 - dividend payout ratio) x return on equity. Here, the dividend payout ratio is 0.3/0.9 = 0.33. So, the sustainable growth rate is (1 - 0.33) x 0.0775 = 0.0517 or 5.17%. Therefore, the best choice is B.

WineMaster Ltd Generated an EPS This Year of $0