Question

7. Andrew's Electronics Statement of Financial Position Non-curren t 3.000.000 Equity Current Act Share Inventaries 1.100.000 Retained in 900.000 Trade receivables 600,000 Total Equity TSON Cash & Cash E 100,000 Non-curren t ie 15800,000 Totalcowanie 2.000000 Current Trade and 0.000 parables Notes Bank Total current liabilities Teal liabilities 3.500,00 Total assets .000.000 Tocal equiry and S000,000 liabilities Statement of Income and Statement of Retained Earnings Revenue 0 .000 Cost of sales 2.500,000 சோலை Mali 1.500.000 Frposes SONO Probetres 700.000 Income tax expense SO Profile for the year Dividends SU Increase in retained camins 10000 Calculate Andrew's Electronics' sustainable growth rate. (10 marks) 8. If you invest $20,000 at 7%, what will the value of your investment be after annual compounding? (8 marks) i) 5 years ii) 7 years iii) 12 years iv) 20 years 9. You are offered two possible choices: (6 marks) a) S10,000 per year annuity for 8 years b) $60,000 right away You are expecting a 7% rate of return. Which choice would you make and show calculations using present value? c) Now show the calculations using future value.

Answer 1

7. Andrew's Electronics Sustainable Growth Rate = Return on Equity * Business Retention Ratio = 23.33%*85.72% = 20%

Business Retention Ratio = 1 - Dividend Payout Ratio = 1 - Income/Net Income = 1 - 50000/350000 = 85.72%

Return on Equity(ROE) = Net Income/Shareholder's Equity = 350000/1500000*100 = 23.33%

Hence, Andrew's Electronics sustainable growth rate is 20% p.a.

Income and Net Income is taken from Statement of Income and Statement of Retained Earnings and Total Equity's value is taken from Andrew's Statement of Financial Position.