Question 4CRS-TP3: Based on the information in Problem 4.1, what growth rate ca...

Skandia retains b = 1 – .3337 = 66.63% of net income. Return on assets is $247.5/3,100 = 7.98%. The internal growth rate is:

        \frac{ROA  \times  b}{1  –  ROA  \times  b}= \frac{.0798  \times  .6663}{1  –  .0798  \times  .6663}  =  5.62\%

Return on equity for Skandia is $247.5/800 = 30.94%, so we can calculate the sustainable growth rate as:

          \frac{ROE  \times  b}{1  –  ROE  \times  b} = \frac{.3094  \times  .6663}{1  –  .3094  \times  .6663}  =  25.97\%