Answer: a). Firm's growth rate = 10.5%
b). Next year's earnings = $30,940,000.00
Explanation: Earnings growth rate is the percentage change in earnings given specific variables.
The firm's earnings growth rate g = Return on equity (ROE) × Retained earnings (b) = 0.15(0.70)
g =0.105 or 10.5%
In finding next year's earnings, we multiply the current earnings times one plus the growth rate.
Next year's earnings = Current earnings(1 + g)
Next year's earnings = 28,000,000(1 + 0.105)
Next year's earnings = $30,940,000.00
Answer:
The firm's earnings growth rate is 10.5%
Firm next year's earnings is $30.94 million
Explanation:
The formula for earnings growth rate is given as returns on equity multiplied by retained earnings
return on equity is given as 15%
retained earnings =$28 million *70%
Retained earnings=$19.6 million
Earnings growth rate=70%*15%
Earnings growth rate =10.50%
Firm next year's earnings =this year earnings*(1+earnings growth rate)
Firm next year's earnings =$28m*(1+0.105)
=$30.94 million
Retained earnings next year could be computed $30.94*70%=$21.66 million
Since the earnings next year is believed to increase to $30.94 million, it implies that even though the payout as dividends is not increasing in percentage terms but increasing in dollar terms
