A firm has $20 million in equity and $20 million of debt, it pays dividends of 20% of net income, and has a net income of $5 million. What is the firm's sustainable growth rate?
A) 18%
B) 19%
C) 20%
D) 21%

Question

Quizplus · Accepted Answer

C) Sustainable growth rate = (net income / beginning equity) × (1 - payout ratio)
Sustainable growth rate = ($5 million / $20 million) × (100% -20%) = 20%

A Firm Has $20 Million in Equity and $20 Million