Question

The Chaldean Riverfood Market has sales of $41,100, current assets of $12,000, net income of $3,500,...

The Chaldean Riverfood Market has sales of $41,100, current assets of $12,000, net income of $3,500, fixed assets of $10,600, total debt of $8,200, and dividends of $888. What is the sustainable growth rate (in percents)?

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Answer #1

Total assets=current assets+fixed assets

=(12000+10600)=$22600

Total equity=Total assets-Total debt

=(22600-8200)=$14400

ROE=net income/Total equity

=(3500/14400)=0.2430556(Approx)

Dividend payout ratio=Dividends/net income

=(888/3500)=0.253714285

Hence retention ratio=1-Dividend payout ratio

=1-0.253714285

=0.746285715

Hence sustainable growth rate=(ROE*retention ratio)/[1-(ROE*retention ratio)]

=(0.2430556*0.746285715)/[1-(0.2430556*0.746285715)]

which is equal to

=22.16%(Approx).

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