The most recent financial statements for Bello Co. are shown here: Assets and co
ID: 2338443 • Letter: T
Question
The most recent financial statements for Bello Co. are shown here:
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent dividend payout ratio.
What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Income Statement Balance Sheet Sales $ 19,100 Current assets $ 11,740 Debt $ 15,820 Costs 12,960 Fixed assets 27,000 Equity 22,920 Taxable income $ 6,140 Total $ 38,740 Total $ 38,740 Taxes (25%) 1,535 Net income $ 4,605Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent dividend payout ratio.
What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Explanation / Answer
ROE=net income/equity
=(4605/22920)=0.20091623
Retention ratio=1-dividend payout
=(1-0.4)=0.6
Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]
=(0.20091623*0.6)/[1-(0.20091623*0.6)]
=13.71%(Approx).