In: Finance
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%
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%