A company with a return on equity of 15 percent and a plowback ratio of 60 percent would expect a constant growth rate of:
A)4 percent
B)9 percent
C)21 percent
D)25 percent g = .015 x .60

Question

Quizplus · Accepted Answer

The constant growth rate can be calculated using the formula: g = ROE x plowback ratio. Therefore, g = 0.15 x 0.60 = 0.09 or 9 percent. Therefore, the correct answer is B.

A Company with a Return on Equity of 15 Percent