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Lane
Lane, CFP, MBA, CRPS
Category: Single Problem
Satisfied Customers: 10149
Experience:  I have been providing tax and finance to individuals businesses and students since 1986
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If the Hunter Corp. has an ROE of 13 and a payout ratio of

Customer Question

If the Hunter Corp. has an ROE of 13 and a payout ratio of 30 percent, what is its sustainable growth rate?
Submitted: 6 months ago.
Category: Single Problem
Customer: replied 6 months ago.
are you there
Expert:  Lane replied 6 months ago.

Hi,

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Sustainable growth rate (the maximum growth rate that a firm can sustain without having to increase leverage) is calculated as follows:

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ROE x (1 - dividend-payout ratio)

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So .13 x (1 - .3) = .091 or 9.1%

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(guessing that you meant 13%)

Customer: replied 6 months ago.
Asking for percentage so that would be 9.1 says it is wrong
Customer: replied 6 months ago.
If the Hunter Corp. has an ROE of 13 and a payout ratio of 30 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.)
Expert:  Lane replied 6 months ago.

THe answer I gave is 9.1% (which would be a realistic growth rate)

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If I take the 13 literally meaning that the company is growing at 13x per year (very unrealistic) then the answer becomes 9.1 (which as a rate means tat the company is growing at 9.1 times itself every year)

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The formula is ROE x (1 - dividend-payout ratio) ... and either the 13 is a percentage or not.

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Again, if the 13 is ta***** *****terally to mean the company is returning 13 times+ itself every year the answer becomes 9.1 (or expressed as a percentage) 900.1%

Expert:  Lane replied 6 months ago.

Did that get you there?

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Would appreciate the feedback

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