Assume a Quebec ﬁrm has sales of $4,750 on assets totaling $2,500, net income of $375, and dividends of $150. What is the sustainable growth rate if the equity has a value of $1,500?

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula: 
Sustainable Growth Rate = (Net Income / Equity) * (1 - Dividend Payout Ratio) 
Dividend Payout Ratio = Dividends / Net Income

Given, 
Sales = $4,750 
Total assets = $2,500 
Net income = $375 
Dividends = $150 
Equity = $1,500

Dividend Payout Ratio = $150 / $375 = 0.4

Sustainable Growth Rate = ($375 / $1,500) * (1 - 0.4) = 0.15 * 0.6 = 0.09 or 9%

Therefore, the correct answer is (B) 17.6%.

Assume a Quebec ﬁRm Has Sales of $4,750 on Assets