Question

The Iron River Company has an ROE of 14.4 percent and a payout ratio of 30 percent. What is the company’s 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

The sustainable growth rate for the Iron River Company, with an ROE of 14.4% and a payout ratio of 30%, is calculated using the formula SGR = ROE × (1 - payout ratio), which results in an SGR of 10.08%.

Step-by-step explanation:

To calculate the sustainable growth rate (SGR) for the Iron River Company, we use the formula SGR = ROE × (1 - payout ratio). Given that the company has a Return on Equity (ROE) of 14.4% and a payout ratio of 30%, we can substitute these values into the formula to find the SGR.

First, let's convert the percentages to decimal form by dividing by 100. The ROE in decimal form is 0.144, and the payout ratio is 0.30.

Now, using the formula:
SGR = 0.144 × (1 - 0.30) = 0.144 × 0.70

SGR = 0.1008 or 10.08% when expressed as a percentage and rounded to two decimal places.

Therefore, the sustainable growth rate for the Iron River Company is 10.08%.