Question

# You are given the following information for Hendrix Guitars, Inc.   Profit margin 6.7 %   Total asset...

 You are given the following information for Hendrix Guitars, Inc.
 Profit margin 6.7 % Total asset turnover 1.7 Total debt ratio .48 Payout ratio 25 %

 Calculate the sustainable growth rate. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 Sustainable growth rate 16.43% Working: a. Suppose Asset is 100. Sales = Assets x Asset turnover = 100 x 1.7 = 170 b. Profit = Sales x profit margin = 170 x 6.70% = 11.39 c. Total debt ratio = Total Debt/Total Assets 0.48 = Total Debt / 100 or, Total Debt = 48 d. Total Asests = Total Debt + Total Equity 100 = 48 + Total Equity or, Total Equity = 52 e. Return on Equity = Net Profit / Equity = 11.39 / 52 = 21.90% f. Sustainable growth rate = Return on Equity x (1-Dividend payout ratio) = 21.90% x (1-0.25) = 16.43%

#### Earn Coins

Coins can be redeemed for fabulous gifts.