Assuming the following ratios are constant, what is the sustainable growth rate?
A) 8.00%
B) 10.62%
C) 14.40%
D) 16.82%
E) 24.00%

Question

Assuming the following ratios are constant, what is the sustainable growth rate? 
A) 8.00% 
B) 10.62% 
C) 14.40% 
D) 16.82% 
E) 24.00%

Quizplus · Accepted Answer

To calculate sustainable growth rate, we use the formula: Sustainable Growth Rate = Return on Equity * Retention Ratio.
In the given ratios, Return on Equity is 20% and Retention Ratio is 0.531. Thus, Sustainable Growth Rate = 20% * 0.531 = 10.62%. Therefore, the best choice is B.

Assuming the Following Ratios Are Constant, What Is the Sustainable