Question

Johnson Products earned $4.20 per share last year and paid a dividend of $1.55 per share. If ROE was 14 percent, what is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Answer:Sustainable growth rate=8.82 %

Explanation:

Given

Earning per share  =$4.20 per share

Dividend paid = 1.55 per share

ROE=14%

We first find

Dividend payout ratio = Dividend paid / Earning per share

= 1.55/4.20

= 0.37

Sustainable growth rate = Return on equity  x Retention ratio

=Return on equity X ( 1- Dividend payout ratio

= 14% x ( 1- 0.37)

=0.14 x 0.63

=0.0882  to percentage becomes 0.0882 x 100=

= 8.82 %