The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share. The book value per share is $12.08.

The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share. The book value per share is $12.08. The firm has earnings per share of $1.86 and a dividend payout ratio of .40. What is the firm’s sustainable rate of growth?

Answer

# of shares=12,000

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P0=$31.6

B0=$12.08

EPS0=$1.86

Payout ratio=0.4

Sustainable growth=?

Sustainable g=ROE*retention ratio

=(Net income/Total equity)*(1-payout ratio)

=((1.86*12,000)/(12.08*12,000))*(1-0.4)

=9.24%