Homework Answers
ROE = (PM)(TAT)(EM)
ROE = (.063)(1 / .72)(1 + .80)
ROE = 0.1575 or 15.75%
The plowback ratio is one minus the dividend payout ratio, so:
b = 1 – ($15,600 / $74,000)
b = 0.7892
Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]
Sustainable growth rate = [.1575(.7892)] / [1 – .1575(.7892)]
Sustainable growth rate = 0.1419 or 14.19%
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