A Company with a Return on Equity of 15 Percent

question 27

Multiple Choice

A company with a return on equity of 15 percent and a plowback ratio of 60 percent would expect a constant growth rate of:

• A)4 percent
• B)9 percent
• C)21 percent
• D)25 percent g = .015 x .60

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Definitions:

Interest Expense

Interest expense is the cost incurred by an entity for borrowed funds, typically reported on the income statement within the financing or other expenses section.

Discount Amortization

The process of gradually writing off the initial discount on a bond or loan over the life of the instrument, affecting the issuer's interest expense.

Effective Yield

The return on an investment, expressed as a percentage, accounting for the effects of compounding over a specified period.

Effective Interest Method

A method of calculating the interest revenue for an investment where the interest rate is compounded with each period.