Answer:
The firm's sustainable rate of growth is 12.98%
Explanation:
To calculate the firm's sustainable rate of growth we need to make a few steps first.
1) According to the principles of accounting Total assets=Total liabilities+Total equity
Total equity hence=(2,200,000-1,080,000)=$1,120,000
Next, we proceed to calculate the ROE, which is ROE=Net income/equity
=(415400/1,120,000)
=0.370892857(Approx)
Next we calculate the Dividend payout ratio=Dividend/Net income
=(270,000/415400)
=0.649975926
Next we calculate the Retention ratio=1-Dividend payout ratio
=1-0.649975926
=0.350024074
Finally, with all the steps made before, we are to calculate the
Sustainable growth rate=(ROE*Retention ratio)
=(0.370892857*0.350024074)
=12.98%(Approx).
