Asked Oct 14, 2019

Assume the following ratios are constant:


  Total asset turnover   2.6  
  Profit margin   6.6 %
  Equity multiplier   1.5  
  Payout ratio   25 %



What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)



Expert Answer

Step 1

The maximum growth which a firm can achieve by using internal resources and fund is known as sustainable growth rate.

Step 2

The formula to calculate return on equity is given below:


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Return on equity Profit margin x Total asset turnoverx Equity multiplier

Step 3

Substitute 6.6% for profit margin, 2.6 for total as...


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Return on equity = 0.066 x 2.6 x 1.5 0.2574


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