Stock valuation with two-stage growth tied to plowback policy Current ROE Plowback ratio 0.25 Return on equity 0.5 The ratio of retained earnings over net income Payout ratio 0.5 The ratio of dividends paid over net income 0.125 Sustainable growth rate = ROE * plowback ratio $4 EPS. DIV. $2 0.2 Po $ 30.00 General Motors is considering the share price impact of a reduction in plowback ratio to 0.30 starting in year 6 onward. Use a template calculate the price impact of such as policy change. ROE Plowbacknew tuố and onward 0.2 0.3 Plowbacksi to s remains @ 0.5 Payoutnew tas and omward 0.7 Payout t 5 remains @ 0.5 Calculate the price impact of reducing plowback ratio to 0.3 starting in year 6 onward.
Stock valuation with two-stage growth tied to plowback policy Current ROE Plowback ratio 0.25 Return on equity 0.5 The ratio of retained earnings over net income Payout ratio 0.5 The ratio of dividends paid over net income 0.125 Sustainable growth rate = ROE * plowback ratio $4 EPS. DIV. $2 0.2 Po $ 30.00 General Motors is considering the share price impact of a reduction in plowback ratio to 0.30 starting in year 6 onward. Use a template calculate the price impact of such as policy change. ROE Plowbacknew tuố and onward 0.2 0.3 Plowbacksi to s remains @ 0.5 Payoutnew tas and omward 0.7 Payout t 5 remains @ 0.5 Calculate the price impact of reducing plowback ratio to 0.3 starting in year 6 onward.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Stock valuation with two-stage growth tied to plowback policy
Current
ROE
0.25 Return on equity
Plowback ratio
0.5 The ratio of retained earnings over net income
Payout ratio
0.5 The ratio of dividends paid over net income
0.125 Sustainable growth rate = ROE * plowback ratio
EPS,
DIV.
$4
$2
0.2
Po
$ 30.00
General Motors is considering the share price impact of a reduction in plowback ratio to 0.30 starting in year 6 onward. Use a template calculate the price impact of such as policy change.
ROE
Plowbacknew te5 and onward
Payoutnew te6 and onward
0.2
0.3 Plowback,=1 to 5 remains @ 0.5
0.7 Payout, t 5 remains @ 0.5
Calculate the price impact of reducing plowback ratio to 0.3 starting in year 6 onward.
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