ExpertMedium1 markMultiple Choice
CPA · Question 18 · Area 2: Financial Statement Analysis
A company has a Sustainable Growth Rate (SGR) of 8%. Its Return on Equity (ROE) is 12%. What is the company's Dividend Payout Ratio?
A company has a Sustainable Growth Rate (SGR) of 8%. Its Return on Equity (ROE) is 12%. What is the company's Dividend Payout Ratio?
Answer options:
A.
66.7%
B.
33.3%
C.
4.0%
D.
50.0%
How to approach this question
Formula: SGR = ROE * (1 - Payout Ratio). Solve for Payout Ratio.
Full Answer
B.33.3%✓ Correct
Retention Ratio = SGR / ROE = 8% / 12% = 2/3 or 66.7%. Payout Ratio = 100% - Retention Ratio = 33.3%.
Common mistakes
Confusing Retention Ratio with Payout Ratio.
Practice the full CPA BAR Practice Exam
50 questions · hints · full answers · grading
More questions from this exam
Q01TechGlobal Inc. is evaluating the performance of its European division using Economic Value Added...HardQ02A manufacturing company is analyzing its production process to identify bottlenecks. The process ...MediumQ03Management is using the COSO Enterprise Risk Management (ERM) framework to address a newly identi...MediumQ04RetailCo is evaluating two strategic initiatives using a Balanced Scorecard approach. <br/>Initia...MediumQ05A company is deciding between two mutually exclusive projects. <br/>Project X: NPV = $50,000, IRR...Medium