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% |

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