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20 January, 03:11

Pizza Pie maintains a constant debt-equity ratio of. 55. the firm had net income of $14,800 for the year and paid $12,000 in dividends. the firm has total assets of $248,000. What is the sustainable growth rate? A) 3.38 percentB) 2.27 percentC) 1.78 percentD) 3.62 percentE) 4.97 percent

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  1. 20 January, 05:43
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    1.78%

    Explanation:

    Let recall the formua for calculating sustainable growth rate:

    Sustainable growth rate = Retention rate x Return on equity

    Retention rate = 1 - Payout ratio = 1 - Dividend/Net income = 1 - 12,000/14,800 = 18.9%

    Return on equity = Net income/Equity = 14,800 / (248,000/1.55) = 9.25%

    Putting all the number together, we have:

    Sustainable growth rate = 18.9% x 9.25% = 1.78%
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