Suppose a ﬁrm has net income of $50, dividends of $15, assets of $1,200 and a debt-equity ratio of 3.0. What is the sustainable growth rate?

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula:

sustainable growth rate = (net income - dividends) / (total assets * (1 - debt-equity ratio))

Substituting the given values, we get:

sustainable growth rate = (50 - 15) / (1,200 * (1 - 3.0)) = 9.6%

Therefore, the best choice is C with the explanation that the sustainable growth rate for the firm is 9.6%.

Suppose a ﬁRm Has Net Income of $50, Dividends of $15