The most recent financial statements for Live Co. are shown
here: Income Statement Sales $15752 Costs...
Free
50.1K
Verified Solution
Link Copied!
Question
Accounting
The most recent financial statements for Live Co. are shownhere: Income Statement Sales $15752 Costs $11206 Taxable Income ?Taxes (40%) ? Net Income ? Balance Sheet Current Asset $13516 Debt$16391 Fixed Asset $25944 Equity ? Assets and costs areproportional to sales. Debt and equity are not. The companymaintains a constant 20 percent dividend payout ratio. No externalfinancing is possible. What is the sustainable growth rate (in%)?
Answer & Explanation
Solved by verified expert
3.6 Ratings (565 Votes)
Income statement
Sales
$15,752
Cost
$11,206
Taxable income
$4,546
Taxes 40%
$1,818
Net Income
$2,728
Balance sheet
Debt
$16,391
Current assets
$13,516
Equity (Bal. fig)
$23,069
Fixed assets
$25,944
Total
$39460
Total
$39,460
To
calculate sustainable growth rate we first need to calculate the
ROE, which
Return on
equity = Net income
/Total equity
Return on
equity = $2728/$23069
Return on
equity = 0.118237 or
11.8237
The plow back ratio , b,one minus the payout ratio, so
b= 1-.020 b
= 0.80
Now we can
use the sustainable growth rate equation to get
Sustainable
growth rate = (ROE x b) / [1- (ROE x b)]
[0.118237 x
0.80] /[1- (0.118237 x 0.80)]
0.104472 or 10.4472
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
