Question

Mercoxit Energy Inc. has a retention ratio of 0.79, an ROA of 5.94%, and an EM of 1.11. This means that they will have a sustainable growth rate of ____%

Answer 1

5.208%

Explanation:

Data provided in the question:

retention ratio = 0.79

ROA = 5.94%

EM = 1.11

Now,

sustainable growth rate = Retention ratio × Return on equity

also,

Return on equity = ROA × EA

or

Return on equity = 5.94 × 1.11 = 6.5934%

Therefore,

The sustainable growth rate = 0.79 × 6.5934

or

The sustainable growth rate = 5.208%