Question

The most recent financial statements for Shinoda Manufacturing Co. are shown below:
  

Income statement		Balance Sheet
Sales	63,400	Current Assets	24,000	Debt = 40,200
Costs	45,080	Fixed Assets	76,900	Equity = 60,700
Taxable Income	18,320	Total	100,900	Total = 100,900
Tax (35%)	6,412
Net Income	11,908

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. No external equity financing is possible.

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               %

Answer 1

Return on equity(ROE) = Net income / Equity

Return on equity = $11,908 / $60,700

Return on equity = 19.6177924%

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Retention ratio = 1 - Pay out ratio

Retention ratio = 1- 35%

Retention ratio = 65%

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Sustainable growth rate = (ROE*Retention ratio) / (1-(ROE*Retention ratio))

Sustainable growth rate = (19.6177924%*65%) / (1-(19.6177924%*65%)

Sustainable growth rate = 14.62%.