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What is the sustainable growth rate for a firm with a return on equity of 15...

What is the sustainable growth rate for a firm with a return on equity of 15 percent, a dividend payout ratio of 40 percent and a debt/equity ratio of 0.33?

4.5 percent

6.0 percent

6.75 percent

9.0 percent

The answer cannot be determined without the outputs of a percentage-of-sales model

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Answer #1

Retention ratio=1-dividend payout

=(1-0.4)=0.6

Sustainable growth rate=(ROE*Retention ratio)

(0.15*0.6)
=9%

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