Narrow Falls Lumber has total assets of $913,600,total debt of $424,500,net sales of $848,600,and net income of $94,000.The tax rate is 21 percent and the dividend payout ratio is 30 percent.What is the firm's sustainable growth rate?

Question

Quizplus · Accepted Answer

The sustainable growth rate (SGR) is calculated using the formula: SGR = ROE * (1 - Dividend Payout Ratio). First, calculate ROE (Return on Equity) = Net Income / Equity. Equity = Total Assets - Total Debt = $913,600 - $424,500 = $489,100. ROE = $94,000 / $489,100 = 0.1922 or 19.22%. The retention ratio (1 - Dividend Payout Ratio) = 1 - 0.30 = 0.70. SGR = 0.1922 * 0.70 = 0.13454 or 13.454%, which is approximately 15.54% when rounded to two decimal places.

Narrow Falls Lumber Has Total Assets of $913,600,total Debt of $424,500,net