CFA CFA Level 1 Question of the Week – Sustainable Growth

Question of the Week – Sustainable Growth

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    • exam_whiz
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      A company with an EPS of $2.75 pays a $1 dividend. If the company maintains a constant dividend yield, and reports ROE of 20% for the next year, what is the company’s sustainable growth rate?

      • 7.27%
      • 11.20%
      • 12.73%
    • exam_whiz
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      Correct Answer:  C

      The sustainable growth rate is calculated as follows:

      Retention Rate = 1 – (1/2.75)  =63.64%

      Sustainable Growth = .6364*.2 = 12.73%

    • shannondaily
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      Woo! I got it right. 🙂 

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