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Yesterday, 21:42

Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent. What is the sustainable growth rate? Multiple Choice 1.11 percent 2.04 percent 44.44 percent 50.00 percent

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  1. Yesterday, 22:13
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    2.04 percent

    Explanation:

    Given that,

    ROE = 10 percent

    Dividend payout ratio = 80 percent

    ROE = Net income : Equity

    = 10 percent

    Retention Ratio = 1 - Dividend payout ratio

    = 1 - 80 percent

    = 0.2 or 20%

    Therefore,

    Sustainable growth rate:

    = (ROE * Retention Ratio) : [1 - (ROE * Retention Ratio) ]

    = (10% * 20%) : [1 - (10% * 20%) ]

    = 0.02 : (1 - 0.02)

    = 0.02 : 0.98

    = 0.0204 or 2.04%
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