Valentino's maintains a constant debt-equity ratio of 0.45.The firm had net income of $11,800 for the year and paid $6,500 in dividends.The firm has total assets of $92,000.What is the sustainable growth rate?
A)7.38 percent
B)8.27 percent
C)9.11 percent
D)9.62 percent
E)10.38 percent

Question

Quizplus · Accepted Answer

Sustainable growth rate = {$11,800/[$92,000/(1 + 0.45)]} × [($11,800 - $6,500)/$11,800]/{1 - {$11,800/[$92,000/(1 + 0.45)]} × [($11,800 - $6,500)/$11,800]} = 9.11 percent

Valentino's Maintains a Constant Debt-Equity Ratio of 0