Question

Or UI WUIL YUU have completo Sol. It does not indicate completion. Return to question Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales INCOME STATEMENT, 2019 Sales $1.000 Costs 190 Interest Taxes $ 600 Net income 140 Assets BALANCE SHEET, YEAR-END 2019 $ 3,750 Debt Equity $3,750 Total $ 2018 $ 3,450 33,450 $ 2018 1,150 2,300 3,450 2019 1,250 2,500 3,750 Total $ $ a. What is the internal growth rate of Eagle Sports if the dividend payout ratio is fixed at 70% and the equity-to-asset ratio is fixed at 2/37 (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) X Answer is complete but not entirely correct.

Answer 1

a). Internal Growth Rate = ROA * Retention Ratio

= [Net Income / Average Total Assets] * [1 - Payout Ratio]

= [$600 / {($3,450 + $3,750)/2}] * [1 - 0.70]

= 0.1667 * 0.30 = 0.05, or 5%

b). Sustainable Growth Rate = ROE * Retention Ratio

= [Net Income / Average Total Equities] * [1 - Payout Ratio]

= [$600 / {($2,300 + $2,500)/2}] * [1 - 0.70]

= 0.25 * 0.30 = 0.075, or 7.5%