Question

4. The most recent financial statements for Smith Corp. are shown below. Income Statement Balance Sheet Sales $16,200 Costs $10,400 Curr Assets $10,100 Debt $16,400 Txbl Income $5,800 Fixed Assets $26,500 Equity $20,200 Taxes (40%) $2,320 Total $36,600 Total $36,600 Net Income $3,480 Assets and costs are proportional to sales while debt and equity are not. The company maintains a constant 30% dividend payout ratio. What is the internal growth rate? 5. For Smith Corp. (above), what is the sustainable growth rate? с в II

Answer 1

Question 4.

Solution: Internal growth rate = (ROA×Plowback ratio)(1- ROA× plowback ratio)

= (0.0951×0.70)(1-0.0951×0.70)

= 6.21 % (rounded off)

Here, ROA = net income / total assets =3,480/36,600 =0.0951

Plow-back ratio = (1- dividend payout) =1-0.30 =0.70

Question :5

Solution:

Sustainable growth rate = (ROE× Plow-back ratio)(1-ROE×Plow-back ratio)

= (0.1723×0.70)(1-0.1723×0.70)

= 10.61 % (rounded off)

Here, ROE = Net income / equity = 3,480/20,200 =0.1723

Provide data for rest questions please!