Problem 4-21 Sustainable Growth and Outside Financing [LO3] You’ve collected the

Question

Problem 4-21 Sustainable Growth and Outside Financing [LO3] You’ve collected the following information about Odyssey, Inc.: Sales $ 170,000 Net income $ 12,800 Dividends $ 8,400 Total debt $ 68,000 Total equity $ 56,000 What is the sustainable growth rate for the company? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Sustainable growth rate 8.53 % If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt–equity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Additional borrowing $ What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Internal growth rate 7.26 % I cant figure out additional borrowing

Explanation / Answer

The new level of total assets = (1+SGR)*(Debt + Equity)

1.0853 ($68,000 + 56,000)

= $134577.20

New Total debt = [D / (D + E)]*(TA)

[$68,000 / ($68,000 + 56,000)]* (134577.2)

=$73800.4

Additional borrowing = New debt- Old debt

=73800.40 - 68000= $5800.40

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