Johnson Products earned $5.08 per share last year and paid a dividend of $2.00 per share. If ROE was 13 percent, what is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

7.88%

Explanation:

Given that,

Dividend earned last year = $5.08 per share

Dividend paid = $2.00 per share

Return on equity, ROE = 13 percent

Retention ratio:

= (Dividend earned last year - Dividend paid) : Dividend earned last year

= ($5.08 - $2.00) : $5.08

= $3.08 : $5.08

= 0.6062

Sustainable growth rate:

= Retention ratio * Return on equity

= 0.6062 * 0.13

= 0.078806 or 7.88%