Calculate the sustainable growth rate given the following information: return on equity = 15%; retention ratio = 85%.
A) 13.61%
B) 14.61%
C) 15.61%
D) 16.61%
E) 17.61%

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = Return on Equity (ROE) * Retention Ratio. Given ROE = 15% and Retention Ratio = 85%, the calculation is: 0.15 * 0.85 = 0.1275 or 12.75%. However, since this option is not available, it seems there was a mistake in the calculation or in the interpretation of the options. Correcting for potential misunderstanding and recalculating based on the given options, the closest correct calculation for the sustainable growth rate using the formula and the provided data would actually be: Sustainable Growth Rate = ROE * Retention Ratio = 15% * 85% = 12.75%. Given the options, there seems to be a misunderstanding, as none directly match the calculated result. Re-evaluating the correct approach: Sustainable Growth Rate = ROE * Retention Ratio = 15% * 0.85 = 12.75%. It appears there was an error in the initial response provided, as none of the options accurately reflect this calculation. The correct choice should be based on the formula provided, but an error in the initial calculation or option interpretation was made.

Calculate the Sustainable Growth Rate Given the Following Information: Return