Assume a company's retention rate is 60 percent, its cost of equity capital is 10 percent, its forecasted earnings per share are $3.00, and its ROE is 12 percent. The company's expected growth rate is closest to:

Question

Quizplus · Accepted Answer

The expected growth rate can be calculated using the formula: Growth Rate = Retention Rate * ROE. Given a retention rate of 60% (or 0.60) and an ROE of 12%, the calculation is 0.60 * 0.12 = 0.072 or 7.20%.

Assume a Company's Retention Rate Is 60 Percent, Its Cost