instead of plowing money back into lucrative ventures, blue skies management is investing at an expected...
instead of plowing money back into lucrative ventures, blue skies management is investing at an expected return on equity of 10 percent which is below the return of 12 percent that investors could expect to get from comparable securities.
i. find the sustainable growth rate of dividends and earnings in these circumstances. assume 60 percent payout ratio
Homework Answers
Sustainable growth rate (SGR) = return on equity * retention ratio
retention ratio = 1 - payout ratio = 1 - 60% = 40%
return on equity = 10%
Sustainable growth rate (SGR) = 10% * 40%
Sustainable growth rate (SGR) = 4%
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