A firm projects net income to be $500,000, intends to pay out $125,000 in dividends, and had $2 million of equity at the beginning of the year. The firm's sustainable growth rate is:
A)5.50%
B)18.75%
C)6.25%
D)4.69%

Question

Quizplus · Accepted Answer

Sustainable growth rate = (Net Income - Dividends) / Equity
Sustainable growth rate = ($500,000 - $125,000) / $2,000,000
Sustainable growth rate = 0.1875 or 18.75%

A Firm Projects Net Income to Be $500,000, Intends to Pay