The Crash Davis Driving School has an ROE of 159 percent and

The Crash Davis Driving School has an ROE of 15.9 percent and a payout ratio of 58 percent.

What is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Sustainable growth rate=

Solution

Retention ratio=1-payout ratio

=(1-0.58)=0.42

Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)

=(0.159*0.42)/[1-(0.159*0.42)]

which is equal to

=7.16%(Approx).