The most recent financial statements for Live Co. are shown here: Income Stateme
ID: 2809709 • Letter: T
Question
The most recent financial statements for Live Co. are shown here: Income Statement Sales $16779 Costs $11475 Taxable Income ? Taxes (40%) ? Net Income ? Balance Sheet Current Asset $10105 Debt $13930 Fixed Asset $26285 Equity ? Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 22 percent dividend payout ratio. No external financing is possible. What is the sustainable growth rate (in %)? (Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 4 decimal places. For example, 1.23456% should be entered as 1.2346)
Explanation / Answer
ROE=net income/equity
Total assets=debt+equity
Hence equity=(10105+26285)-13930
=$22460
ROE =(3182.4/22460)
=0.141691896
Retention ratio=1-dividend payout ratio
=(1-0.22)=0.78
Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]
=(0.78*0.141691896)/[1-(0.78*0.141691896)]
which is equal to
=12.4252%(Approx).
Sales 16779 Costs 11475 Taxable income $5304 Taxes@40% $2121.6 Net income $3182.4