Answer:
0.1563946140 or 15.64%
Explanation:
The computation of the sustainable growth rate is shown below:
But before that we need to do the following calculations
As we know that
Profit margin = net income ÷ Sales
So,
0.069 = $86,000 ÷ Sales
Sales = $1,246,376.81159
Now
Capital intensity ratio = Total assets ÷ Sales
Total assets is
= $1,246,376.81159 × 0.78
= $972,173.91304
And,
Debt - Equity ratio = Debt ÷ Equity = 0.9
Now, if debt is 0.9, and equity is 1, Thereforetotal assets is 1.9 (0.9 + 1).
So,
Equity = Total assets x 1 ÷ 1.9
= $972,173.91304 ÷ 1.9
= $511,670.480547
And,
Return on Equity (ROE) = Net income ÷ Equity
= $86,000 ÷ $511,670.480547
= 0.16807692307 or 16.807692307%
And,
Dividend payout ratio = Dividend ÷ net income
= $16,800 ÷ $86,000
= 0.1953488372
Now
Retention ratio (b) = 1 - dividend payout
= 1 - 0.1953488372
= 0.8046511628
So,
Sustainable growth rate (SGR) = (ROE x b) ÷ [ 1 - (ROE × b) ]
= (0.16807692307% × 0.8046511628) ÷ [ 1 - (0.16807692307% × 0.8046511628) ]
= 0.1563946140 or 15.64%
