The most recent financial statements for Throwing Copper Co. are shown here: 35,
ID: 2751054 • Letter: T
Question
The most recent financial statements for Throwing Copper Co. are shown here:
35,200
$133,650
$133,650
$13,068
Assets and costs are proportional to sales. The company maintains a constant 30 percent dividend payout ratio and a constant debtequity ratio.
What is the maximum increase in sales that can be sustained assuming no new equity is issued? (Do not round your intermediate calculations.)
$7,828.1
$4,041.03
$3,065.88
$7,728.1
$7,628.1
The most recent financial statements for Throwing Copper Co. are shown here:
Explanation / Answer
Return on equity= net income/total equity= 13068/74250=0.176 or 17.6%
b=1-.30=.70
sustainable growth rate= (ROE*b)/ {1-(ROE*b)}= (0.176*0.70)/{1-(0.176*0.70)}
= 0.140 or 14%
Therefore, maximum increase in sales= 55,000*0.14= $2100