Joker stock has a sustainable growth rate of 8 percent, ROE of 14 percent, and dividends per share of $1.65. If the PE ratio is 19, what is the value of a share of stock?

Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
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Joker stock has a sustainable growth rate of 8 percent, ROE of 14 percent, and dividends per share of $1.65. If the PE ratio is 19, what is the value of a share of stock?

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Introduction

Sustainable Growth Rate

  • The sustainable growth rate demonstrates the highest growth rate that a company will sustain without needing to raise any additional funds or leverage. 
  • This helps the organization to be sustainable with its funds and save itself from over financing and helps in avoiding any financial difficulties.
  • Sustainable growth is rate is usually donated by the letter "G" and is calculated by multiplying the organization's earnings Retention Rate with the Return on Equity. 
  • Formula = Sustauinable Growth Rate = Return on Equity × (1-Dividened Payout Ratio)G=ROE×(1-DPR)
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