The most recent financial statements for Shinoda Manufacturing Co. are shown bel
ID: 2727888 • Letter: T
Question
The most recent financial statements for Shinoda Manufacturing Co. are shown below:
The most recent financial statements for Shinoda Manufacturing Co. are shown below Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 41 percent dividend payout ratio. No external equity financing is possible. Required: What is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Sustainable growth rate %Explanation / Answer
Return on equity = Net income / Total equity = 12493 / 63700 = 0.1961 i.e., 0.1961 * 100 = 19.61 %
b = retention ratio = 1 - dividend payout = 1 - 0.41 = 0.59
Sustainable growth rate = Retention ratio * Return on equity
= 0.59* 19.61
= 11.5699 i.e., 11.57 % (approx).
Conclusion:- The Sustainable growth rate = 11.57 %