Question

If the Moran Corp. has an ROE of 12 percent and a payout ratio of 20 percent, what is its sustainable growth rate

Answer 1

9.6%

Step-by-step explanation:

The ROE is 12 %

The payout ratio is 20%

The first step is to calculate tnr retention ratio

= 1-(20/100)

= 1-0.2

= 0.8

The sustainable growth can be calculated as follows

= 12×0.8

= 9.6

Hence the sustainable growth rate is 9.6%