Question

The Bolten Corporation had earnings per share of $2.60 in 2012, and book value per share at the end of 2011 (beginning of 2012) was $13.
a. What was the firm’s return on equity (book value) in 2012?
b. If the firm pays out $0.78 in dividends per share, what is the retention ratio? How much will book value per share be at the end of 2012? Add retained earnings per share for 2012 to book value per share at the beginning of 2012.
c. Assume the same rate of return on book value for 2013 as you computed in part a. for 2012. What will earnings per share be for 2013? Multiply rate of return on book value (part a) by book value at the end of 2012 (second portion of part b).
d. What is the growth rate in earnings per share between 2012 and 2013?
e. If the firm continues to earn the same rate of return on book value and maintains the same earnings retention ratio, what will the sustainable growth rate be for the foreseeable future?


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  • CreatedSeptember 21, 2015
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