In the year just ended,Ellie May's Power Tools had net income of $200,000 based upon a sales level of $1,500,000.It's total assets are $800,000 while its total equity is $700,000.If Ellie May pays out 0% of its net income in dividends,then what is the firm's sustainable growth rate going forward?

Question

Quizplus · Accepted Answer

g* = {m(1-d)(A/E)} / [(A/S)- {m(1-d)(A/E)}]
A/S = 8/15,A/E = 8/7,m = 200,000/1,500,000,(1-d)= 1
g* = .4

In the Year Just Ended,Ellie May's Power Tools Had Net