Question

You've collected the following information about Molino, Inc.: Sales $ 215,000 Net income $ 17,300 Dividends $ 9,400 Total debt $ 77,000 Total equity $ 59,000 a. 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.) b. If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a. sustainable growth rate:
b. additional borrowing:
c. internal growth rate:

Answer 1

1
sustainable growth rate=(ROE * Retention Ratio)/(1-ROE*Retention Ratio)
ROE =net income / total Equity =17300/59000	29.32%
Retention Ratio =1-Dividend Payout=1-(9400/17300)	45.66%
sustainable growth ratio =(29.32%*45.66%)(1-29.32%-45.66%)	15.46%
2
New Total Asset =(77000+59000)*(1+15.46%)	157025.4
New Debt =D/(D+E)*New total Aset==77000/(77000+59000)*157024.4	88904.11
Old Debt	77000
Increase in Borrowing 88901.11-77000	11904.11
3
internal growth rate =ROA *Retention Ratio/(1-ROA*Retention Ratio)
ROA	12.72%
Retention Ratio =1-Dividend Payout=1-(9400/17300)	45.66%
internal growth rate=12.72%*45.66%/(1-12.72%*45.66%)	6.17%