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27. Determine a venture’s sustainable growth rate based on the following information: sales = $1,000,000; net...

27. Determine a venture’s sustainable growth rate based on the following information: sales = $1,000,000; net income = $150,000; common equity at the end of last year = $520,000; and the dividend payout percentage = 20%.

a. 10%

b. 16%

c. 20%

d. 24%

e. 30%

Expert Solution

correct option is "e" -30%

Retention ratio(b) = 1-dividendpayout ratio

= 1-.20

= .80

Return on equity (ROE) =Net income /equity

= 150000/520000

= .28846

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

=[.28846*.80]/[1-(.28846*.80)]

= .2308/[1-.2308]

= .2308 /.7692

= .30 or 30%

jeff jeffy answered 4 months ago

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