A company with a return on equity of 30% and a dividend payout of 25% will have a sustainable growth rate of 7.5%.

Question

Quizplus · Accepted Answer

The sustainable growth rate is calculated as the return on equity (ROE) multiplied by the retention ratio (which is 1 minus the dividend payout ratio). In this case, with an ROE of 30% and a dividend payout of 25%, the retention ratio is 75% (100% - 25%). Therefore, the sustainable growth rate is 30% * 75% = 22.5%, not 7.5%.

A Company with a Return on Equity of 30% and a Dividend