Calculate the sustainable growth rate given the following information: return on equity = 20%; payout ratio = 40%.
A) 15.64%
B) 14.64%
C) 13.64%
D) 12.64%
E) 11.64%

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = Return on Equity * (1 - Payout Ratio). Given a return on equity of 20% (or 0.20) and a payout ratio of 40% (or 0.40), the calculation is: 0.20 * (1 - 0.40) = 0.20 * 0.60 = 0.12 or 12%. Therefore, the correct answer is 12.64%, which is closest to option D.

Calculate the Sustainable Growth Rate Given the Following Information: Return