The Dog House has net income of $3,450 and total equity of $8,600. The payout ratio is 60%. What is the sustainable growth rate?
Group of answer choices
21.29%
19.11%
39.94%
14.47%
The sustainable growth rate is computed as shown below:
= [ (ROE x b) / (1 - (ROE x b) ) ]
ROE is computed as follows:
= Net income / Total equity
= $ 3,450 / $ 8,600
= 0.401162791
b is computed as follows:
= 1 - payout ratio
= 1 - 0.60
= 0.40
So, the sustainable growth rate is computed as follows:
= [ (0.401162791 x 0.40) / (1 - (0.401162791 x 0.40) ]
= 0.160465116 / 0.839534884
= 19.11% Approximately
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