DD co Specimen dec 16

I have a question in calculating growth. I have understood examiners answer that how he has calculated growth rate , but I just want to ask can’t we calculate growth in the following way , however, the answer is not coming correct, can you please tel me what mistake I am doing here?

We know that we can calculate growth by gordon’s retention model

g = retention ratio x return on equity

In this question payout ratio is given of 40% which implies that retention ratio is 60%

Now in question number of ordinary shares issued are 25m. And question says that current dividend per share of company is $0.5 per share. So in this way total dividends paid would be 25m x 0.5 = $12500000.

As we know that Dividend paid = PAT x payout ratio
so by using this formula we can calculate PAT= 12500000 / 0.4 = $31250000.

Now we know Retained earnings or profit = PAT – dividend paid
so Retained earnings = 31250000 – 12500000 = $18750000

Return on investment = PAT / [ordinary share capital + reserves]
Ret on inv = 31250000 / [60000000 + 18750000] = 0.4

g= 0.6 x 0.4 = 0.24