Final answer:
The growth rate of the company can be calculated using the formula Growth Rate = ROE × (1 - Dividend Payout Ratio). With a 24% dividend payout ratio and a 12% return on equity, the growth rate is 9.12%, making option B the correct answer.
Step-by-step explanation:
The student asked to calculate the growth rate of a company that pays out 24% of its earnings in dividends and has a return on equity (ROE) of 12%. The growth rate can be determined using the retention ratio and the return on equity in the formula for sustainable growth rate, which is Growth Rate = ROE × (1 - Dividend Payout Ratio). The dividend payout ratio is 24%, so the retention ratio (the portion of retained earnings to reinvest in the company) is 76%. Plugging these values into the formula:
Growth Rate = 12% × (1 - 0.24)
Growth Rate = 12% × 0.76
Growth Rate = 9.12%
Thus, the correct answer is B) 9.12%.