Premier Corporation has an ROE of 15.5 percent and a payout ratio of 54 percent. What is its sustainable growth rate?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

The sustainable growth rate (SGR) is the rate at which a company can grow its earnings, dividends, and equity without having to increase its debt or equity financing. The formula to calculate the sustainable growth rate is:

\[
\text{SGR} = ROE \times (1 - \text{Payout Ratio})
\]

Where:
- ROE is the return on equity,
- Payout Ratio is the percentage of earnings paid out as dividends.

Given:
- ROE = 15.5% or 0.155,
- Payout Ratio = 54% or 0.54.

Now, substitute the values into the formula:

\[
\text{SGR} = 0.155 \times (1 - 0.54)
\]

\[
\text{SGR} = 0.155 \times 0.46 = 0.0713
\]

Converting this to a percentage:

\[
\text{SGR} = 7.13\%
\]

Thus, the sustainable growth rate is **7.13%**.

Would you like further explanation or details? Here are 5 related questions:

1. How does the payout ratio affect a company's sustainable growth rate?
2. What impact does increasing the ROE have on the sustainable growth rate?
3. Can a company have a sustainable growth rate if it pays out all of its earnings as dividends?
4. How can a company increase its sustainable growth rate without raising more equity?
5. What is the difference between the sustainable growth rate and the internal growth rate?

**Tip:** A lower payout ratio can lead to a higher sustainable growth rate since more earnings are retained for reinvestment into the company.

Premier Corporation has an ROE of 15.5 percent and a payout ratio of 54 percent. What is its sustainable growth rate? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

Learn how to calculate the sustainable growth rate for Premier Corporation, with an ROE of 15.5% and a payout ratio of 54%. This detailed solution uses the formula SGR = ROE × (1 - Payout Ratio), providing a clear step-by-step explanation suitable for college-level finance students.

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