Question

4. A firm has Debt-Equity ratio of 1.2 and Total Assets of $2 million. What must be total debt? 5. A firm has sales of $355,000, net income of $28,000, and dividends of $12,500. Total debt is $73,000 and Total equity is $95,000. If the firm grows at the SGR, issues no new equity, and maintains its Debt-Equity ratio, how much must be borrowed?

Answer 1

solution of Q No.4 As Given, Debtequity Ratio = 1.2 Total Asset = $2 million Total Debt = ? . let the total Debt be re, fomnia, Debt-equity Ratio - Debt Putting the value in the fomnia, - - Total Debt Total. Total Asset Debt liha H a $2 million- 1.21 $2 million-x) = x $2.4 million - 1,2% = x $2.4 million = at 1:22 $2.4 million = 2.22 o w - $1.09 million. $2.4 million २.२ 1 Total Debt = $1.09 million 14

- Soluston 4 Q.No. 5 Sales = $ 355,000 Net Income = $20000 Dividends = $12500 Total Debt = $ 73000 Total equity = $95000 of the firm grow at the SGR (sustainable growth Rate), issues no equity and maintain it Debt equity Ratio the amount of New borrowing = le. Totde New Debt. Cakulation of for the calculation of sustakable growth sale, first of all, we will calculate the ROE, then Retention Ratto so Het Income $20000 0,294736842103 - Total equity $95000 TROE=0.2947 OR 29.47% Dividend payout Raa (b) . Retention Ration=1 - bial-. Dividend Net Income growth Rate (SCR) sustainable - 24

b = 1 + $12500 $20900 b=1-0.4464 = 0.5536 Retention Ratio (b) = 0.5536 x Retention Ratio (SGR) Sustainable growth Rale ROE x Retention Ratio) 11- (ROEx Retention SCR ROEX b_ 20.29473684 X0.5535 7142 T-(ROEXb) 1 - (0.29473684 x 0 55357142) 0.16315789104 0.16315709104 -0.19496854 SGR= 0.16315789104 :I-0116315709104 0.03604210096 ISGR= 0. 1950 OR 19.50 % / Calculation of. Total New Assets Total New Apsets = (1+S@R) (Total Debt +Total equity) Total New Astets = 119496854 x( $73000 +$95000) Total New Asset 2 11 94960254 X$168000 Total New Assets = $200,754.47

Calculation of Total New Debt Total New Total New Debt Assets & Total Debt (Total + Total ) Debt equity) Total New Debt = $200,754.47% $73000 $73000 +$95000 Total New Debt = $200,754, 47*$73000 $168000 Total New Debt = $87232.597 Total New Debt = $87232.60 पाप