Question

The Crash Davis Driving School has an ROE of 13.3 percent and a payout ratio of 32 percent. What is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

9.94%(Approx).

Step-by-step explanation:

Retention ratio=1- payout ratio

=1-0.32

=0.68

Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]

=(0.133*0.68)/[1-(0.133*0.68)]

=0.09044/0.90956

=9.94%(Approx).