Calculate the rate at which the firm can grow without changing its leverage if its payout ratio is 70%, equity outstanding at the beginning of the year is $900,000, and its net income for the year is $150,000:

Question

Quizplus · Accepted Answer

The sustainable growth rate (SGR) is calculated as ROE * (1 - payout ratio). ROE = Net Income / Equity = $150,000 / $900,000 = 0.1667. SGR = 0.1667 * (1 - 0.70) = 0.1667 * 0.30 = 0.05 or 5.00%.

Calculate the Rate at Which the Firm Can Grow Without