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

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%