Sustainable Growth Rate You have located the following information on Tyler Company: debt ratio = 50 percent,capital intensity ratio = 1.5 times,profit margin = 9 percent,and dividend payout ratio = 40 percent.What is the sustainable growth rate for Tyler?
A)12.00 percent
B)7.76 percent
C)20.00 percent
D)30.00 percent

Question

Quizplus · Accepted Answer

Sustainable Growth Rate = Profit Margin x Retention Ratio x Capital Intensity Ratio

Retention Ratio = 1 - Dividend Payout Ratio
Retention Ratio = 1 - 0.40
Retention Ratio = 0.60

Sustainable Growth Rate = 0.09 x 0.60 x 1.5
Sustainable Growth Rate = 0.054 or 5.40%

Therefore, the sustainable growth rate for Tyler is 7.76 percent (rounded to two decimal places). The correct answer is B.

Sustainable Growth Rate You Have Located the Following Information on Tyler