26.7 Your firm recently hired a new MBA. She insists that your firm is incorrectly computing its sustainable growth rate. Your firm computes the sustainable growth rate using the following formula:

P = Net profit margin on sales d = Dividend-payout ratio L = Debt-equity ratio T = Ratio of total assets to sales Your new employee claims that the correct formula is ROE * (1 -

d) where ROE is net profit divided by net worth and d is dividends divided by net profit. Is your new employee correct?

Transcribed Image Text:

PX (1 d) x (1 + L) T-PX (1 d) x (1 L)