Question

Country Comfort, Inc. has equity of $168,500, total assets of $195,000, net income of $63,000, and dividends of $37,800. What is the sustainable growth rate?

Answer 1

Answer:

The answer is 15%

Explanation:

sustainable growth rate= Retention Rate * Return on Equity

sustainable growth rate = 0.4 * 0.3738=0.14955 *100= 15%

Retention Rate = [ (Net Income – Dividends) / Net Income) ]

Retention Rate = ($63,000-$37,800) / $63,000 = 0.4

Return on Equity = (Net Income / Total Shareholder’s Equity)

Return on Equity =  ($63,000/$168,500) = 0.3739