Compute the sustainable growth rate, g = b times ROE. where b equals the plowbac

Question

Compute the sustainable growth rate, g = b times ROE. where b equals the plowback ratio. Compare the growth rates(g) with the P/E rations of the films by plotting the P/Es against the growth rates in a scatter diagram. Is there a relationship between the two? Calculate intrinsic value of the two firms using divided discount model and compare with market price. What is your opinion of the two stocks? Apple Alphabet inc Apple total dividends: dollar11, 045,925,000 Alphabet inc total dividends: dollar 0 Apple divided ratio: 20.07percentage Alphabet inc dividends payment ratio: 0 percentage Apple Plowback Ratio: 79.93percentage Alphabet Plowback Ratio: 100 percentage Apple Sustainagle growth Ratio: 79.93percentage Alphabet Sustainable growth Ratio: 13.59 percentage

Explanation / Answer

payout ratio for Apple=1.98/(533940,00000/5578750000),533940,00000/5578750000=EPS

plow back ratio for Apple=1-payout ratio=1-(1.98/(533940,00000/5578750000))

sustainable growth rate for Apple=44.74%*(1-(1.98/(533940,00000/5578750000)))=35.48%

payout ratio for Alphabet=0%

plow back ratio for Alphabet=1-payout ratio=1-0=1

sustainable growth rate for Alphabet=13.59%*(1)=13.59%

sustainable ROE shares O/s Dividend/share NetIncome(NI) earnings/share payoutratio plowbackratio growthrate ROE Ns DPS NI EPS=NI/Ns p=DPS/EPS b=1-p g=b*ROE Apple 44.74% 5,57,87,50,000 1.98 53,39,40,00,000 $                   9.57 20.69% 79.31% 35.48% Alphabet Inc. 13.59% 68,73,50,000 0 16,34,80,00,000 $                 23.78 0.00% 100.00% 13.59%

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