Calculate annual growth rate

Originally posted in Equity Research but didn't get any bites. 

I was given a question on an exam that asked to calculate the annual growth rate using the follow information:
Annual dividend = .75cents
EPS = $3
P/E = 13
RoE = 22%

Couldn't figure this out. Any idea? Thanks in advance.

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Comments (5)

  • Intern in IB-M&A
Jun 11, 2021 - 7:07pm

Sustainable Growth Rate = ROE * (1-Dividend Payout Ratio) = 22% * (1-(.75/3)) = 16.5%

Note: 1-Dividend Payout Ratio = Retention Ratio

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