CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

A portfolio manager is currently evaluating one of the stocks in the portfolio by looking at the following data:

Current dividend per share: $0.75
Current earnings per share: $1.82
Total no. of shares outstanding: 22 million
Book value of common equity: $350 million

What is the best estimate of this particular company's dividend growth rate?
A. 4.7%
B. 6.7%
C. Inconclusive given the data
Explanation: Sustainable Growth Rate = ROE ( 1 - Dividend Payout Ratio) = [($1.82 x 22M)/$350M] [1 - 0.75/1.82] = 6.7%

Note: ROE equals total earnings divided by total equity book value.

User Contributed Comments 3

User Comment
yxten1 The trick is to relate this question to sustainable growth theory
birdperson g = rr * ROE
akivag Isn't ROE assuming calculations using Market Value of Equity?
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