Sustainable Growth Rate Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent.What is the sustainable growth rate?
A)1.11 percent
B)2.04 percent
C)44.44 percent
D)50.00 percent

Question

Quizplus · Accepted Answer

The sustainable growth rate formula is:
Sustainable Growth Rate = ROE x (1 - Dividend Payout Ratio)
= 10% x (1 - 0.80)
= 2%
Therefore, the sustainable growth rate is 2.04 percent, which is option B.

Sustainable Growth Rate Last Year Rain Repel Corporation Had an ROE