Which of the following should increase the firm's sustainable growth rate?

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = ROE x Plowback Ratio. Therefore, increasing the plowback ratio (or retention ratio) will increase the sustainable growth rate. The other choices will have the opposite effect. Increasing the dividend payout ratio will decrease the plowback ratio, and decrease the sustainable growth rate. Decreasing the required return will increase the expected ROE, but without an increase in plowback ratio, the sustainable growth rate will remain the same. Decreasing the ROE will decrease the sustainable growth rate, as it is a key factor in the calculation.

Which of the Following Should Increase the Firm's Sustainable Growth