Question

BFC Ltd. has the following financial information: Net Profit: $5 million; Sales: $100 million; Total Assets:...

BFC Ltd. has the following financial information: Net Profit: $5 million; Sales: $100 million; Total Assets: $50 million; Equity $22.73 Million; Earnings Per Share (EPS): $3.00; Dividends Per Share: $1.00. What is BFC’s return on equity and the estimated sustainable growth rate? In general, how would the growth rate and payout ratio of value firms be different from growth firms? Explain why.

Homework Answers

Answer #1

Net profit =$5 million

Shareholder equity = $22.73 million

ROE is calculated by dividing net profit by shareholders' equity

So ROE = $ 5 million / $ 22.73 million = 0.2199 or 22%

Dividend per share = $1

EPS = $3

Dividend payout ratio = Dividend per share/ EPS

= 1/3 = 33.33%

Sustainable growth rate = ROE * (1-dividend payout ratio)

22%*(2/3)= 14.66%

Growth firms have typically low or zero payout ratios As they mature, they tend to return more of the earnings back to investors and value firms have high dividend payout ratios.

Growth firms have higher growth rates compared to value firms

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
BFC Ltd. has the following financial information: Net Profit: $5 million; Sales: $100 million; Total Assets:...
BFC Ltd. has the following financial information: Net Profit: $5 million; Sales: $100 million; Total Assets: $50 million; Equity $22.73 Million; Earnings Per Share (EPS): $3.00; Dividends Per Share: $1.00. What is BFC’s return on equity and the estimated sustainable growth rate? In general, how would the growth rate and payout ratio of value firms be different from growth firms? Explain why.
Omega Limited has net income of $35 million, earnings before tax of $50 million, earnings before...
Omega Limited has net income of $35 million, earnings before tax of $50 million, earnings before interest and tax of $60 million, gross profit of $80 million, sales of $300 million, assets of $400 million, current liabilities of $40 million, shareholders’ equity of $120 million, dividends of $15 million, shares outstanding of 100 and share price of $2 per share. Calculate sustainable growth rate ratio ratio?
The Amherst Company has a net profits of ​$88 ​million, sales of ​$124 ​million, and 2.2...
The Amherst Company has a net profits of ​$88 ​million, sales of ​$124 ​million, and 2.2 million shares of common stock outstanding. The company has total assets of ​$71 million and total​ stockholders' equity of ​$37 million. It pays ​$1.33 per share in common​ dividends, and the stock trades at $27 per share. Given this​ information, determine the​ following: a. ​Amherst's EPS. b. ​Amherst's book value per share and​ price-to-book-value ratio. c. The​ firm's P/E ratio. d. The​ company's net...
Loreto Inc. has the following financial ratios: asset turnover = 2.60; net profit margin (i.e., net...
Loreto Inc. has the following financial ratios: asset turnover = 2.60; net profit margin (i.e., net income/sales) = 4%; payout ratio = 25%; equity/assets = 0.30. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate?
Loreto Inc. has the following financial ratios: asset turnover = 1.60; net profit margin (i.e., net...
Loreto Inc. has the following financial ratios: asset turnover = 1.60; net profit margin (i.e., net income/sales) = 6%; payout ratio = 25%; equity/assets = 0.80. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate?
A consultant has collected the following information regarding Young Publishing: Total assets            $3,000 million               &
A consultant has collected the following information regarding Young Publishing: Total assets            $3,000 million                                Tax rate                                40% Operating income (EBIT)              $800 million         Debt ratio                              0% Interest expense                             $0 million        WACC                                   10% Net income                                        $480 million          M/B ratio                                1.00× Share price                                         $32.00                 EPS = DPS                            $3.20 The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends (EPS = DPS). The consultant believes that if the company...
A firm has Net Income = $20 million from Sales = $150 million. The firm’s Debt...
A firm has Net Income = $20 million from Sales = $150 million. The firm’s Debt = $100 million, and the Book Equity = $100 million. a. What are the firm’s PROFIT MARGIN, ASSET TURNOVER, and ASSET/EQUITY MULTIPLE. b. If the firm wants to maintain its current Asset/Equity ratio, along with a payout ratio of 30% of Net Income, what is the firm’s sustainable growth rate? c. The firm is committed to keeping its Debt/Equity ratio constant in the future....
The Amherst Company has a net profits of ​$16 ​million, sales of $187 ​million, and 3.1...
The Amherst Company has a net profits of ​$16 ​million, sales of $187 ​million, and 3.1 million shares of common stock outstanding. The company has total assets of ​$80 million and total​stockholders' equity of ​$53 million. It pays ​$.82 per share in common​ dividends, and the stock trades at ​$19 per share. Given this​ information, determine the​ following: (round all to 2 decimal places) *huge thumbs up for correct answer* a. ​Amherst's EPS is (blank$) ? b.Amherst's book value per...
ABC Ltd 2017 income statement listed net sales of sh. 125 million, earnings before interest taxes...
ABC Ltd 2017 income statement listed net sales of sh. 125 million, earnings before interest taxes of sh. 56 million, net income availble to common stockholders of sh. 32 million and common stock dividends of sh. 12 million. The year ended balance sheets listed total assets at sh. 525 million, common stockholder equity of sh. 210 million with 2 million shares outstanding. required calculate and explain the meaning of: i) profit margin ii) basic earnings power ratio iii) return on...
Last year XYZ company had a net profit of $6.4 million, year end total assets of...
Last year XYZ company had a net profit of $6.4 million, year end total assets of $90 million, year end total debt of $55 million, a book value per share of $6.50 and shareholders equity of $32.5 million. Based on this information, the company's earnings per share (EPS) was;