Eagle Enterprises Inc., has an asset turnover of 1.1, a financial leve

Eagle Enterprises Inc., has an asset turnover of 1.1, a financial leverage ratio of 1.67, a profit margin of 12% and a dividend payout ratio of 25%. What is the firm’s sustainable growth rate?

A) 29.39%
B) 14.07%
C) 5.51%
D) 16.53%

ANSWER

D
Explanation: D) Sustainable Growth = ROE * b = (12% * 1.1 * 1.67 ) * (1 – 0.25 ) = 16.53%