What is the sustainable growth rate for a firm with net income of $2.5 million, cash dividends of $1.5 million, and return on equity of 18%?

Name: What is the sustainable growth rate for a firm with net income of $2.5 million, cash dividends of $1.5 million, and return on equity of 18%?
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Quizplus · Accepted Answer

The plowback ratio (1 - payout ratio) is 0.4 (1 - 1.5/2.5), and the ROE is 18%, so the sustainable growth rate is:

0.4 x 18% = 7.2%

Therefore, the best choice is C.

What Is the Sustainable Growth Rate for a Firm with Net