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You are given the following information on Kaleb's Kickboxing: Profit margin 6% Capital intensity ratio 0.7...

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Accounting

You are given the following information on Kaleb's Kickboxing:Profit margin 6% Capital intensity ratio 0.7 Debt–equity ratio 0.6Net income $99933 Dividends $15221 Calculate the sustainable growthrate (in %) (round 4 decimal places)

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4.1 Ratings (687 Votes)

1 Profitability rate = Net Income/Total sales
0.06 = $99,933/Sales
Sales = $99,933/0.06
Sales = $16,65,550
2 Capital intensity ratio = Total Asset/Total sales
0.70 = Total Asset/$16,65,550
Total Asset = $16,65,550*0.70
Total Asset = $11,65,885
3 Debt Equity Ratio = Total Debt/Total Equity
Debt = 60% of 11,65,885 = $699,531
Equity = 40% of 11,65,885 = $466,354
4 Asset utilization rate = Total sales/Total Asset
Asset utilization rate = $16,65,550/$11,65,885
= 1.43
5 Return on equity = Asset utilization rate*profitability rate*Debt equity rate
ROE = 1.43*0.06*0.60
= 0.05418 or 5.418%
6 Dividend Rate = Dividend/Sales
Dividend Rate = $15,221/$99,933
= 0.1523
7 Retention rate = 1-0.1523
= 0.8477
8 Sustainable Growth Rate = ROE*Retention rate
= 0.05418*0.8477
= 0.04593 or 4.59%

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