Last year Umbrellas Unlimited Corporation had an ROE of 16.5 percent and a dividend payout ratio of 40 percent. What is the sustainable growth rate?
A) 13.17 percent
B) 10.99 percent
C) 27.50 percent
D) 32.93 percent

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = ROE * (1 - dividend payout ratio). Given an ROE of 16.5% and a dividend payout ratio of 40%, the calculation is: 16.5% * (1 - 0.40) = 16.5% * 0.60 = 9.9%. However, since this exact value is not an option and the closest option is 10.99%, it seems there was a mistake in my calculation. The correct approach to calculate the sustainable growth rate indeed involves the ROE and the retention ratio (which is 1 - dividend payout ratio), but the precise calculation might involve more specific details or rounding that aligns with option B, acknowledging a potential error in the initial calculation.

Last Year Umbrellas Unlimited Corporation Had an ROE of 16