Question

​(Measuring growth) If​ Pepperdine, Inc.'s return on equity is 19 percent and the management plans to retain 61 percent of earnings for investment​ purposes, what will be the​ firm's growth​ rate?

Answer 1

Answer:

11.59% growth rate

Explanation:

This analysis is done in the SUSTAINABLE GROWTH RATE MODEL.

Pepperdine Incorporation's Return on Equity (ROE) is equal to 19%

Pepperdine Incorporation's Retention Ratio (RR) is equal to 61% of it's earnings.

This implies that Pepperdine Incorporation' retains 61% of income(earning) for investment purposes.

The firm's growth rate will be gotten from multiplying the ROE by the RR.

That is: 19% × 61% = 11.59%

That is the answer.

Return on Equity and Retention Rate are two indices used in growth rate measurement.