Question

he most recent financial statements for Minnie's Manufacturing Co. are shown below: Income Statement Balance Sheet Sales 91,200 Current $32,000 Debt $ 42,000 assets Costs 66,150 Fixed assets 93,200 Equity 83,200 Taxable income $25,050 Total $125,200 Total $125.200 Tax 5,261 Net Income $19,789 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. No external financing is possible what is sustainable growth rate

Answer 1

Answer:

The sustainable Growth Rate is 15.46%

Explanation:

Return on equity= (Net income/Equity Shareholder's Fund) * 100

= ($19,789 / $83,200) * 100

= 23.78%

Payout ratio is 35%.

Therefore, Retention Rate is 65% or 0.65

Sustainable Growth Rate = Return on Equity * Retention Rate

= 23.78% * 0.65 =

= 0.2378 * 0.65

= 0.15457

= 15.46%

Thus, the sustainable Growth Rate is 15.46%