If a venture has a return on assets ROA 10 an equity multip

If a venture has a return on assets (ROA) = 10%, an equity multiplier based on beginning equity = 4.0 times, and a dividend payout ratio of 60%, the sustainable growth rate would be: a. 10% b. 16% c. 20% d. 24% e. 40%

Solution

return on equity = 10% * 4 = 40%

the sustainable growth rate would be = 40% *( 1 - 0.60) = 16%