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A firm’s return on equity is 16%, and the management plans to retain 60% of earnings...

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Finance

A firm’s return on equity is 16%, and the management plans toretain 60% of earnings for investment purposes, what will be thefirm’s growth rate?

Clearly show which EQUATIONS could be used to solve theproblem mathematically

Indicate the detailed steps on how to use FINANCIALCALCULATOR or Equations from the Textbook to solve theproblems.

Answer & Explanation Solved by verified expert
4.3 Ratings (617 Votes)

Information provided:

Return on equity= 16%

Retention rate= 60%

Sustainable growth rate= Return on equity* Retention rate

                                              = 0.16*0.60

                                              = 0.0960*100

                                              = 9.60%.

In case of any query, kindly comment on the solution.
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Transcribed Image Text

A firm’s return on equity is 16%, and the management plans toretain 60% of earnings for investment purposes, what will be thefirm’s growth rate?Clearly show which EQUATIONS could be used to solve theproblem mathematicallyIndicate the detailed steps on how to use FINANCIALCALCULATOR or Equations from the Textbook to solve theproblems.

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