Answer:
0.0678
Explanation:
Given:
Profit margin = 6% = 0.06
Dividend payout ratio = 37% = 0.37
Total asset turnover = 1.2
Equity multiplier = 1.4
Required:
Find the sustainable rate of growth.
First find the return on equity using the formula: Equity Multiplier × Assets turnover × Profit margin
= 1.4 * 1.2 * 0.06
= 0.1008
Return on equity = 0.1008
To find the sustainable growth, we have the following:
[tex]= \frac{0.1008 (1 - 0.37)}{1 - (0.1008 (1 - 0.37))}[/tex]
[tex]= \frac{0.063504}{1 - 0.063504} = 0.0678[/tex]
Therefore, sustainable growth = 0.0678
