Last year, Axle Inc.reported total assets of $400, equity of $200, net income of $50, dividends of $10, and earnings retained in the period of $40.What is Axle Inc.'s sustainable growth rate?

Question

Quizplus · Accepted Answer

The sustainable growth rate is calculated as the retention ratio (retained earnings/net income) multiplied by the return on equity (ROE). The retention ratio is $40/$50 = 0.8. ROE is net income/equity = $50/$200 = 0.25. Therefore, the sustainable growth rate is 0.8 * 0.25 = 0.20 or 20 percent.

Last Year, Axle Inc