Question

A firm begins operations with $300,000 in equity on its balance sheet. The equity holders borrow...

A firm begins operations with $300,000 in equity on its balance sheet. The equity holders borrow an additional $200,000 to purchase assets. The assets produce sales of $1,000,000 and a net profit margin of 10%. Since the firm is growing, it retains all earnings and does not pay dividends.

- Calculate ROE

- What is the equity balance at the end of the year?

- Calculate the sustainable growth rate. Assume no new equity has been issued.

- What is the cash flow to stockholders for the year?

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