Blockbuster is a North American video and DVD sales and rental chain. Use the financial information in the table to calculate Blockbuster's maximum sustainable growth rate. Selected Ratios
Blockbuster Inc.
As of December 31, Year 2
$$\begin{array} { | c | c | }
\hline \text { ROE } & - 4.18 \% \
\hline \text { ROA } & - 3.10 \% \
\hline \begin{array} { c }
\text { Net Profit } \
\text { Margin }
\end{array} & - 4.66 \% \
\hline \begin{array} { c }
\text { Total Asset } \
\text { Turnover }
\end{array} & 0.67 \
\hline \begin{array} { c }
\text { Dividend } \
\text { Payout Rate }
\end{array} & 0 \% \
\hline
\end{array}$$

Question

Blockbuster is a North American video and DVD sales and rental chain. Use the financial information in the table to calculate Blockbuster's maximum sustainable growth rate. Selected Ratios
Blockbuster Inc.
As of December 31, Year 2
$$\begin{array} { | c | c | } 
\hline \text { ROE } & - 4.18 \% \
\hline \text { ROA } & - 3.10 \% \
\hline \begin{array} { c } 
\text { Net Profit } \
\text { Margin }
\end{array} & - 4.66 \% \
\hline \begin{array} { c } 
\text { Total Asset } \
\text { Turnover }
\end{array} & 0.67 \
\hline \begin{array} { c } 
\text { Dividend } \
\text { Payout Rate }
\end{array} & 0 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

The maximum sustainable growth rate is calculated using the formula: ROE * (1 - Dividend Payout Rate). Given that ROE is -4.18% and the Dividend Payout Rate is 0%, the maximum sustainable growth rate is -4.18% * (1 - 0) = -4.18%. However, since growth cannot be negative, the maximum sustainable growth rate is effectively 0%.

Blockbuster Is a North American Video and DVD Sales and Rental