Big Mac's and Small Dog's are two firms that are equal in every way except for their retention ratios. Big Mac's has a 50 percent retention ratio. Small Dog's has a 60 percent retention ratio. Given this difference,

Question

Quizplus · Accepted Answer

The sustainable growth rate is directly related to the retention ratio (or plowback ratio), which is the proportion of earnings retained after dividends are paid. A higher retention ratio means a company can reinvest more of its earnings into the business, potentially leading to a higher sustainable growth rate. Since Small Dog's has a higher retention ratio (60%) compared to Big Mac's (50%), Small Dog's has a higher sustainable rate of growth.

Big Mac's and Small Dog's Are Two Firms That Are