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The Two Sisters has a 17 percent return on equity and a 31 percent retention ratio. What is the
sustainable growth rate (under constant debt/equity)?4.99 Percent
Solution
Substainable growth Rate measure how much a company can grow withour borrowing more
money.
The formulae for clculaton of Substainable growth rate = ROE* (1 - Dividend payout ratio)
Retention Ratio = 1- Payout ratio
0.31= 1-Divendend payout ratio
Diveidend payout ratio= 0.69
Therefore, the Substainable growth rate= 17 * (1-0.69)
= 17* 0.31
= 5.27%
Theferfore, the answer is 5.27%
i.e. The answer is option C i.e 5.56%

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The Two Sisters has a 17 percent return on equity and a 31 percent r.pdf

  • 1. The Two Sisters has a 17 percent return on equity and a 31 percent retention ratio. What is the sustainable growth rate (under constant debt/equity)?4.99 Percent Solution Substainable growth Rate measure how much a company can grow withour borrowing more money. The formulae for clculaton of Substainable growth rate = ROE* (1 - Dividend payout ratio) Retention Ratio = 1- Payout ratio 0.31= 1-Divendend payout ratio Diveidend payout ratio= 0.69 Therefore, the Substainable growth rate= 17 * (1-0.69) = 17* 0.31 = 5.27% Theferfore, the answer is 5.27% i.e. The answer is option C i.e 5.56%