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ryzh
17 days ago
11

The most recent financial statements for Minnie's Manufacturing Co. are shown below: Income Statement Balance Sheet Sales $ 95,4

00 Current assets $ 35,500 Debt $ 46,200 Costs 68,250 Fixed assets 95,300 Equity 84,600 Taxable income $ 27,150 Total $ 130,800 Total $ 130,800 Tax 6,245 Net Income $ 20,905 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. No external equity financing is possible. What is the sustainable growth rate
Business
1 answer:
marusya05 [3.7K]17 days ago
6 0
The sustainable growth rate is 17.30%. For the sustainable growth rate, retention ratio times return on equity, where retention ratio equals 1 minus payout ratio, giving us 1 - 0.30 = 0.7. From every dollar of net income, the company retains 70 cents for reinvestment. Return on equity is calculated as net income over equity: 20,905 / 84,600 = 0.247101. Thus, every dollar of equity yields 0.247104 cents in income. Keeping 70% of it, we find: 0.2471 times 0.7 equals 0.1729728, or a sustainable growth rate of 17.30%.
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