A firm has $50 million in equity and $20 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's sustainable growth rate?
A) 12%
B) 13%
C) 14%
D) 15%

Question

Quizplus · Accepted Answer

C) Sustainable growth rate = (net income / beginning equity) × (1 - payout ratio)
Sustainable growth rate = ($10 million / $50 million) × (100% - 30%) = 14%

A Firm Has $50 Million in Equity and $20 Million