Question

# Profit margin = 10.3 % Capital intensity ratio = .64 Debt−equity ratio = .79 Net income...

 Profit margin = 10.3 % Capital intensity ratio = .64 Debt−equity ratio = .79 Net income = \$ 114,000 Dividends = \$ 53,500

Based on the above information, calculate the sustainable growth rate for Southern Lights Co. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Sustainable growth rate             %

Profit margin=net income/sales

Hence sales=(114000/0.103)=\$1,106,796.117

Capital intensity ratio=total assets/sales

Hence total assets=\$1,106,796.117*0.64

=\$708349.5146(Approx)

Debt−equity ratio=debt/equity

Hence debt=0.79equity

Total assets=debt+equity

\$708349.5146=0.79equity+equity

Hence equity=\$708349.5146/(0.79+1)

=\$395725.9858

Dividend payout ratio=Dividend/Net income

=(53500/114000)=0.469298245

Retention ratio=1-payout ratio

=1-0.469298245

=0.530701755

ROE=net income/equity

=(114000/\$395725.9858)

=0.2880778125

ROE=(Retention ratio*ROE)/[1-(Retention ratio*ROE)]

=(0.2880778125*0.530701755)/[1-(0.2880778125*0.530701755)]

=18.05%(Approx).

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