Sustainable growth rate
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The Steiben Company has a return on equity (ROE) of 8.5 percent and a payout ratio of 35 percent.
A-What is the company's sustainable growth rate?
B-Can the company's actual growth rate be different from its sustainable growth rate? why or why not?
C-How can the company change its sustainable growth rate ?
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Solution Summary
This solution provides an overview of several calculations relating to sustainable growth rate.
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a. SGR = ROE X (1-payout ratio) /(1-ROE X (1-payout ratio))
SGR = 8.5% X (1-0.35)/(1-8.5% X (1-0.35))
SGR = 5.85%
b. The sustainable growth rate (SGR) suggests the rate that the company should grow at if ...
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