The Crash Davis Driving School has an ROE of 16.9 percent and a
payout ratio of 68 percent.
What is its sustainable growth rate? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate
%
Sustainable Growth Rate
Sustainable Growth Rate is calculated by using the following formula
Sustainable Growth Rate = [ROE x b)] / [1- (ROE x b)]
ROE = 16.90%
Retention Ratio (b) = 0.32 (1 – 0.68)
Therefore, the Sustainable Growth Rate = [ROE x b)] / [1- (ROE x b)]
= [0.1690 x 0.32] / [1 – (0.1690 x 0.32)]
= 0.05408 / [1 - 0.05408]
= 0.05408 / 0.94592
= 0.0572
= 5.72%
“Hence, the Sustainable Growth Rate = 5.72%”
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