Question

The most recent financial statements for Bello Co. are shown here: ed Income Statement Sales $20,200 Costs 13,900 Balance Sheet Current $ 11,960 Debt assets Fixed assets 31,950 Equity $16,480 27,430 Taxable income $ 6,300 Total $43,910 Total $43,910 Taxes (22%) 1,386 Net income $ 4,914 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 55 percent dividend payout ratio. What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Sustainable growth rate 12.38 %

Answer 1

Sustainable Growth Rate Return on equity 11 0.179 Net income Average Equity 4,914 = 27,430 Sustainable Growth Rate II (1 - Dividend Payout Ratio) x Return on equity (1 - 55%) x 0.179 (1 - 0.55) x 0.179 0.45 x 0.179 0.081 OR 8.1%