Question

The most recent financial statements for Live Co. are shown here: Income Statement Sales \$15130 Costs...

The most recent financial statements for Live Co. are shown here:

 Income Statement Sales \$15130 Costs \$11288 Taxable Income ? Taxes (40%) ? Net Income ?
 Balance Sheet Current Asset \$12262 Debt \$16278 Fixed Asset \$28304 Equity ?

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 25 percent dividend payout ratio. No external financing is possible.

What is 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)

 Particulars Amount Formula Sales \$15,130 Costs \$11,288 Taxable Income \$3,842 =Sales - Cost Taxes (40%) \$1,537 =Taxable Income *40% Net Income \$2,305 =Taxable income-Taxes

STEP 1: Asset utilization Rate = Total Sales / Total Asset

i.e.{ \$15,130 / (\$12,262 + \$28,304)} = 37.30%

STEP 2: Profitability rate = Net Income / Total Sales

i.e. (\$2,305 / \$15,130) = 15.24%

STEP 3: Financial Utilization Rate = (Total Debt / Total Equity) or Total Debt / (Total Asset - Total Debt)

i.e. {\$16,278 / (\$40,566 - \$16,278)} = 67.02%

STEP 4: Return on Equity = Step 1 * Step 2 * Step 3

i.e. (37.30% * 15.24% * 67.02%) = 3.8085%

STEP 5: Retention Ratio = 100% - Dividend rate

i.e. 100% - 25% = 75%

STEP 6 = Sustainable Growth rate = Step 4 *Step 5

i.e. 3.8085% * 75% = 2.8564%

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