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Johnson Products earned $4.30 per share last year and paid a dividend of $1.65 per share....

Johnson Products earned $4.30 per share last year and paid a dividend of $1.65 per share. If ROE was 16 percent, what is the sustainable growth rate?

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Expert Solution

Dividend payout ratio=Dividend payout/Net income

=1.65/4.3

=0.38372093

Retention ratio=1-Dividend payout ratio

=1-0.38372093

=0.61627907

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

=(0.61627907*0.16)/[1-(0.61627907*0.16)]

=10.94%(Approx)

jeff jeffy answered 2 years ago
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