Wilt's has earnings per share of $3.98 and dividends per share of $1.35. What is the firm's sustainable rate of growth if its return on assets is 14.6% and its return on equity is 12.2%?

To calculate the firm's sustainable growth rate, we need to first understand the definition of the sustainable growth rate. The sustainable growth rate (SGR) is the maximum rate at which a company can grow its sales, earnings, and dividends by using generated earnings to fund new capital investment, without having to increase financial leverage (debt) or equity financing.

The formula to calculate the sustainable growth rate is:

SGR = Retention Ratio x Return on Equity (ROE)

First, we need to find the retention ratio. The retention ratio is the proportion of earnings that is retained in the company (not paid out as dividends) and thus available for reinvestment. It can be calculated by subtracting the dividend payout ratio from 1.

Retention Ratio = 1 - Dividend Payout Ratio

And the Dividend Payout Ratio is calculated by dividing Dividends per Share by Earnings per Share:

Dividend Payout Ratio = Dividends per Share / Earnings per Share

For Wilt's, it would be:

Dividend Payout Ratio = $1.35 / $3.98 

Dividend Payout Ratio = 0.3392

Now, calculate the retention ratio:

Retention Ratio = 1 - Dividend Payout Ratio 

Retention Ratio = 1 - 0.3392 

Retention Ratio = 0.6608

Now that we have the retention ratio, we can proceed to calculate the SGR using the ROE given:

SGR = Retention Ratio x ROE SGR 

SGR = 0.6608 x 12.2% 

SGR = 8.06576%

Therefore, the firm's sustainable growth rate is approximately 8.07%.