Question

Gold Corp has an ROE of 15 percent and a payout ratio of 18 percent at is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g 32.16 tainabte growth rate

Answer 1

We need to calculate the retention ratio to calculate the sustainable growth rate. The retention ratio is:

b = 1 – 0.18

b = 0.82

Now we can use the sustainable growth rate equation to get:

Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]

Sustainable growth rate = [.15(.82)] / [1 – .15(.82)]

Sustainable growth rate = 0.1403 or 14.03%