a.sustainable growth rate | 18.96% |
b. ROE *b (using beginning of period equity) | 18.96% |
c.ROE *b (using end of period equity) | 15.94% |
working:
ending equity = 135,000 beginning equity + 29,000 net income -3,400 dividends.
=>$160,600.
return on equity =net income / ending equity =>29,000/160,600
=>0.18057285
retention ratio:
=> (net income- dividends) / net income
=> (29,000-3400) / 29,000
=>25,600 /29,000
=>0.88275862.
sustainable growth rate = (return on equity *retention ratio) / [1-(return on equity*retention ratio)]
=> (0.18057285*0.88275862)/ [1-(0.18057285*0.88275862)]
=>0.15940224/ [1-0.15940224]
=>0.1896
=>18.96%.
b. return on equity using beginning of the period equity =$29,000 /135,000
=>0.21481481.
roe * b = 0.21481481*0.88275862
=>0.1896
=>18.96%.
c.return on equity using ending of period equity = 29,000/160,600
=>0.18057285
roe*b=>0.18057285*0.88275862
=>0.1594
=>15.94%.
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