The newspaper reported last week that Bennington Enterprises earned $34.04 million this year. The report also stated that the firm’s return on equity is 13 percent. Bennington retains 85 percent of its earnings. What is the firm's earnings growth rate? (Do not round intermediate calculations and round your final answer 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.)

a.

15.29%

b.

$39,659,760  

Explanation:

Note that the formula for return on equity provided below can be used to determine the  earnings growth rate:

return on equity=earnings growth rate*retention rate

return on equity=13%

the earnings growth rate is the unknown

retention rate=85%

13%=the earnings growth rate*85%

the earnings growth rate=13%/85%=15.29%

The  earnings next year=this year's earnings*(1+15.29% )

The  earnings next year=$34,400,000*(1+15.29%)=$39,659,760  

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