Sustainable Growth Rate Last year Umbrellas Unlimited Corporation had an ROE of 16.5 percent and a dividend payout ratio of 40 percent.What is the sustainable growth rate?
A)13.17 percent
B)10.99 percent
C)27.50 percent
D)32.93 percent

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the following formula:
Sustainable Growth Rate = ROE x (1 - Dividend Payout Ratio)
= 16.5% x (1-40%)
= 9.9%
Therefore, the sustainable growth rate for Umbrellas Unlimited Corporation is 9.9%, which is closest to choice B (10.99%).

Sustainable Growth Rate Last Year Umbrellas Unlimited Corporation Had an ROE