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The most recent financial statements for Minnie's Manufacturing Co. are shown below: Income Statement Balance Sheet Sales $ 95,400 Current assets $ 35,500 Debt $ 46,200 Costs 68,250 Fixed assets 95,300 Equity 84,600 Taxable income $ 27,150 Total $ 130,800 Total $ 130,800 Tax 6,245 Net Income $ 20,905 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. No external equity financing is possible. What is the sustainable growth rate

Answer :

TomShelby

Answer:

17.30% sustainable growth rate

Explanation:

sustainable growth rate:

retention ratio x return on equity

retention ratio = 1 - payout ratio = 1 - 0.30 = 0.7

from each dollar of net income the company keeps 70 cents for re-investing.

return on equity: net income / equity

20,905 / 84,600 = 0,247101

each dollar of equity generates 0.247104 cents of income

we keep 70% of this, therefore:

0.2471 x 0.7 = 0,1729728 = 17.30% sustainable growth rate

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