A firm has $80 million in equity and $40 million of debt, it pays dividends of 20% of net income, and has a net income of $10 million. What is the firm's sustainable growth rate?
A) 7%
B) 8%
C) 9%
D) 10%

Question

Quizplus · Accepted Answer

D) Sustainable growth rate = (net income / beginning equity) × (1 - payout ratio)
Sustainable growth rate = ($10 million / $80 million) × (100% - 20%) = 10%

A Firm Has $80 Million in Equity and $40 Million