Please show all work on IGR, thanks You\'ve collected the following information

ID: 2383504 • Letter: P

Question

Please show all work on IGR, thanks

You've collected the following information about Ema, Inc.: Requirement 1: What is the sustainable growth rate for the company? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Requirement 2: Assuming it grows 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).) Requirement 3: What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

IGR= ( ROA * b ) / ( 1- (ROA * b) )

=(11.15%*60.87)/(1-(11.15%*60.87)) =7.28 %

7.28%

ROA =Net Income/Total Asset

18400/(67000+98000) =11.15%

11.15%

b= Retention ratio (1- Dividend payout ratio)

Dividend payout ratio

dividends/Net Income =7200/18400 = 39.13

39.13%

Retention Ratio 100-39.13% = 60.87%

60.87%