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:

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?

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PX (1 d) X (1 + L) T PX (1 d) x (1 L) P = Net profit margin on sales d = Dividend-payout ratio L = Debt-equity ratio T = Ratio of total assets to sales