Joker stock has a sustainable growth rate of 11 percent, ROE of 13 percent, and

Question

Joker stock has a sustainable growth rate of 11 percent, ROE of 13 percent, and dividends per share of $1.35. If the ratio is 18.0, what is the value of a share of stock? Joker stock has a sustainable growth rate of 11 percent, ROE of 13 percent, and dividends per share of $1.35. If the ratio is 18.0, what is the value of a share of stock? Joker stock has a sustainable growth rate of 11 percent, ROE of 13 percent, and dividends per share of $1.35. If the ratio is 18.0, what is the value of a share of stock?

Explanation / Answer

sustainable growth =11/100=.11

ROE=.13

retention ratio =sustainable growth / ROE

so r =.11/.13

r=.85

Payout ratio =1-.85=D/EPS

or EPS = D/.15

D is given by $1.35

so EPS=1.35/.15 = 9

ratio is given by 18

so P/E=18

so P=18X9

P=$162 where P is the value of the stock.

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