Question

You are given the following information for Clapton Guitars, Inc.

Profit margin | 9 | % | |

Total asset turnover | 1.6 | ||

Total debt ratio | 0.42 | ||

Payout ratio | 35 | % |

Calculate 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)**

Answer #1

Total debt ratio=Total debt/Total assets

Hence total debt=0.42Total assets

Total assets=debt+Total equity

Total equity=(1-0.42)Total assets

=0.58Total assets

Equity multiplier=Total assets/Total equity

=Total assets/0.58Total assets

=1.724137931

ROE=Profit margin*Total asset turnover*Equity multiplier

=(0.09*1.6*1.724137931)

=0.248275862

Retention ratio=1-payout ratio

=(1-0.35)=0.65

Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]

=(0.248275862*0.65)/[1-(0.248275862*0.65)]

=**19.2434(Approx).**

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Total asset turnover
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Total debt ratio
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Payout ratio
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Profit margin
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Total asset
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Total debt
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Profit margin
=
4.43
%
Total asset turnover
=
3.40
Total debt ratio
=
.26
Payout ratio
=
28
%
What is the sustainable growth rate for the company? (Do
not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
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and enter your answer as a percent rounded to...

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Costs
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Taxable Income
?
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?
Net Income
?
Balance Sheet
Current Asset
$12262
Debt
$16278
Fixed Asset
$28304
Equity
?
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(Enter your answer as a percentage, omit...

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Profit margin
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Equity multiplier
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Payout ratio
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intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)

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