Question

he newspaper reported last week that Bennington Enterprises earned $34.03 million this year. The report also stated that the firm’s return on equity is 12 percent. The firm retains 80 percent of its earnings. What is the firm's earnings growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What will next year's earnings be? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

Answer 1

Answer:

(A) 9.6%

(B) 37,296,880

Explanation:

Current earnings for Bennington Enterprise is $34.03 million

The ROE is 12 percent

= 12/100

= 0.12

Retention ratio is 80 percent

= 80/100

= 0.8

(A) The firms earning growth rate can be calculated as follows

= 0.8× 0.12

= 0.096×100

= 9.6%

(B) Next year earnings can be calculated as follows

= 34,030,000 × (1+0.096)

= 34,030,000× 1.096

= 37,296,880