Answer:
32.98%
Explanation:
From the the question above, the total assets turnover is 3.50
The profit margin is 6.4%
= 6.4/100
= 0.064
The equity multiplier is 1.70
The dividend payout ratio is 35%
= 35/100
= 0.35
The first step is to calculate the return on equity
ROE= Profit margin×Total assets×Equity multiplier
ROE= 0.064×3.50×1.70
ROE= 0.381×100
ROE= 38.1%
The next step is to calculate the plow back ratio
Plowback ratio= 1-dividend payout ratio
= 1-0.35
= 0.65
Therefore, the sustainable growth rate can be calculated as follows
= (ROE×Plowback ratio)/[1-(ROE-Plowback ratio)]
= (0.381×0.65)/[1-(0.381-0.65)]
= 0.248/1-0.248
= 0.248/0.752
= 0.3298×100
= 32.98%
Hence the sustainable growth rate is 32.98%
