If the Return on Equity Is 5% and the Firm $2 \%$

question 12

Multiple Choice

If the return on equity is 5% and the firm has a dividend payout ratio of 40%,what is the sustainable growth rate?

• A) \( 2 \% \)
• B) \( 3 \% \)
• C) \( 5 \% \)
• D) \( 7 \% \)

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Definitions:

Repurchase of Stock

This refers to a scenario where a company buys back its own shares from the marketplace, reducing the amount of outstanding stock.

Market Price

The ongoing rate at which an asset or service is offered for sale or buying.

Tender Offer

A proposal by an investor or company to buy shares from every shareholder of a publicly traded corporation at a specified price for a certain period.

Undervalued

Describing an asset or security whose price is perceived to be less than its intrinsic or book value, suggesting it may be a good investment opportunity.