Part 4: Sustainable Growth

ROE 2.90% ROA 1.61% ROI 4.28 % b 1-(0/0.13) Divendend is 0 earning per shars 0.13

Recall from Module 1, that a firm can achieve its Sustainable Growth Rate by using internal equity financing and a constant debt ratio.

Sustainable growth rate = (ROE b) / [1-(ROE b)] (Eq. 4-3)

As defined in the text, b is the retention or plowback ratio. For your selected company, use Mergents data to calculate the Sustainable Growth Rate for the most recent period. Show your calculations. How would you interpret the result for the company you selected? Does this seem reasonable to you?

Respond: if your selected company chooses to grow at its Sustainable Growth Rate, with increases in both retained earnings and debt, how will this influence its WACC?