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Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent. What is the sustainable growth rate? Multiple Choice 1.11 percent 2.04 percent 44.44 percent 50.00 percent

Respuesta :

Answer:

2.04 percent

Explanation:

Given that,

ROE = 10 percent

Dividend payout ratio = 80 percent

ROE = Net income ÷ Equity

       = 10 percent

Retention Ratio = 1 - Dividend payout ratio

                          = 1 - 80 percent

                          = 0.2 or 20%

Therefore,

Sustainable growth rate:

= (ROE × Retention Ratio) ÷ [1 - (ROE × Retention Ratio)]

= (10% × 20%) ÷ [1 - (10% × 20%)]

= 0.02 ÷ (1 - 0.02)

= 0.02 ÷ 0.98

= 0.0204 or 2.04%

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