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Exhibit 9.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent. Refer to Exhibit 9.2. What is the expected sustainable growth rate

User Snixtor
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30 votes

Answer:

3%

Step-by-step explanation:

Expected sustainable growth rate = (1 - Payout ratio) * Return on Equity

Expected sustainable growth rate = (1 - 0.75) * 12%

Expected sustainable growth rate = 0.25 * 0.12

Expected sustainable growth rate = 0.03

Expected sustainable growth rate = 3%

So, the expected sustainable growth rate is 3%

User Milani
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