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LuckyWell [14K]
3 years ago
8

Problem 4-8 Sales and Growth [LO2] The most recent financial statements for Alexander Co. are shown here: Income Statement Balan

ce Sheet Sales $ 42,950 Current assets $ 17,580 Long-term debt $ 37,070 Costs 35,550 Fixed assets 68,350 Equity 48,860 Taxable income $ 7,400 Total $ 85,930 Total $ 85,930 Taxes (21%) 1,554 Net income $ 5,846 Assets and costs are proportional to sales. The company maintains a constant 35 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum dollar increase in sales that can be sustained assuming no new equity is issued
Business
1 answer:
Flura [38]3 years ago
3 0

Answer:

$3,621.96

Explanation:

ROE = Net income/Equity * 100

ROE = 5846/48860*100

ROE = 11.9648%

Dividend payout ratio = 35%

Retention Ratio = 1 - 35% = 65%

Sustainable growth rate = (ROE*b)/(1-ROE*b)

Sustainable growth rate = (11.9648%*0.65)/(1- (11.9648%*0.65%))

Sustainable growth rate = 8.43%

Therefore, Maximum Dollar Increase in sales = Sales * Sustainable growth rate = 42,950 * 8.43% = $3,621.96

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Answer:

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Explanation:

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Where,

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2 years ago
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