The most recent financial statements for Live Co. are shown here: Income Stateme
ID: 2762152 • Letter: T
Question
The most recent financial statements for Live Co. are shown here: Income Statement Balance Sheet Sales $11,000 Current assets $23,719 Debt $23,377 Costs 6,600 Fixed assets 16,598 Equity 16,940 Taxable income $4,400 Total $40,317 Total $40,317 Taxes (34%) 1,496 Net income $2,904 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 32 percent dividend payout ratio. No external equity financing is possible. Required: What is the sustainable growth rate? (Do not round your intermediate calculations.) rev: 09_17_2012 12.7 % 13.2 % 5.8 % 5.15 % 13.7 %
Explanation / Answer
Sustainable Growth Rate = Retantion Ratio* ROE
= .68*.1714 =11.66%
OR
SGR =Net Margin*Retantion Ratio*Assets Turnover*Assets to Equity Ratio
= 26.40%*68%*.27*2.38 =11.66%
Sales $11,000.00 Cost $6,600.00 Income before tax $4,400.00 Less; Tax $1,496.00 Net Income $2,904.00 Less: Dividend Paid (DP Ratio 32%) $929.28 Retained Earning $1,974.72 Retantion Ratio 68% Net Margin Ratio 26.40%