SGS Corp. has an ROE of 12 percent and a payput ratio of 20 percent.
what is its sustainable growth rate?
Ans. | Sustainable growth rate = (ROE * Retention ratio) / [1 - (ROE * Retention ratio)] | ||||
(0.12 * 0.80) / [1 - (0.12 * 0.80)] | |||||
0.096 / [1 - 0.096] | |||||
0.096 / 0.904 | |||||
0.10619 | |||||
or 10.62% | |||||
*Retention ratio = 1 - Dividend Payout ratio | |||||
1 - 0.20 | |||||
0.80 | |||||
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