Question 19.ss.5: Renewal Company has net income of $1.25 million and a divide...

Renewal Company has net income of $1.25 million and a dividend payout ratio of 35 percent. It currently has equity of $2,875,223. What is the firm’s sustainable growth rate?

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Renewal’s sustainable growth rate is:

\begin{matrix} SGR &=& Plowback \ ratio \times ROE \\ \\ &=&0.65 \times \frac{\$1,250,000}{\$2,875,223} \\ \\ &=&0.283 = 28.3\% \end{matrix}

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