What Is the Sustainable Growth Rate for a Firm with Net

question 105

Multiple Choice

What is the sustainable growth rate for a firm with net income of $2.5 million, cash dividends of $1.5 million, and return on equity of 18%?

• A)3.0%
• B)5.4%
• C)7.2%
• D)10.8% Sustainable growth rate = plowback ratio x ROE
• = (1 - payout ratio) x ROE
• =

---

Definitions:

Ch-Squared Distribution

A statistical distribution describing the sum of the squares of variables that follow a standard normal distribution; often used in hypothesis testing.

Degrees of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution or test without violating any constraints.

Confidence Interval

An estimated range of values calculated from a sample that is likely to cover the true population parameter with a certain level of confidence.

Population Variance

A measure of the dispersion or spread of a set of data points in a population, quantifying how much the members of a population differ from the population mean.