- CFA Exams
- CFA Exam: Level II 2021
- Study Session 10. Equity Valuation (2)
- Reading 27. Discounted Dividend Valuation
- Subject 11. Sustainable growth rate
CFA Practice Question
Which of the following will increase a company's sustainable growth rate of earnings?
B. increasing its return on equity.
C. decreasing its retention rate.
A. increasing its dividend payout ratio.
B. increasing its return on equity.
C. decreasing its retention rate.
Correct Answer: B
The sustainable growth rate can be computed as the product of ROE and 1 minus the dividend payout ratio.
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