Sustainable Growth Rate Last year Rain Repel Corporation had an ROE of 10% and a dividend payout ratio of 80%. What is the sustainable growth rate?

Question

Quizplus · Accepted Answer

Sustainable Growth Rate = (ROE x Retention Ratio) / (1 - ROE x Retention Ratio)
Retention Ratio = 1 - Dividend Payout Ratio = 1 - 0.80 = 0.20
Sustainable Growth Rate = (0.10 x 0.20) / (1 - 0.10 x 0.20) = 0.02 or 2.04%

Sustainable Growth Rate Last Year Rain Repel Corporation Had an ROE