The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share. The book value per share is $21.08. The firm has earnings per share of $3.34 and a dividend payout ratio of .40. What is the firm's sustainable rate of growth?

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Quizplus · Accepted Answer

The sustainable growth rate is calculated as ROE * (1 - dividend payout ratio). ROE can be found using EPS / Book value per share. So, ROE = $3.34 / $21.08 = 0.1584 or 15.84%. The retention ratio is 1 - 0.40 = 0.60. Therefore, the sustainable growth rate is 15.84% * 0.60 = 9.51%.

The Grand Isle Has 12,000 Shares of Stock Outstanding at a Market