Question

Miami Book Publishers (MBP) just reported earnings of $20 million, and it plans to retain 35 percent of its earnings. If MBP’s historical return on equity (ROE) was 15 percent, what is the expected growth rate for MBP’s earnings?

Answer 1

Answer:

5.25%

Explanation:

The computation of the expected growth rate for MBP’s earnings is shown below:

Expected growth rate = Historical return on equity (ROE) × retention ratio

= 15% × 35%

= 5.25%

We simply multiplied the return on equity with the retention ratio so that the expected growth rate could come

The earnings that are mentioned in the question is not relevant. Hence, ignored it