Chapter 4, #5 The most recent financial statements for Schenkel Co. are shown he

Question

Chapter 4, #5

The most recent financial statements for Schenkel Co. are shown here:

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 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.)

Income Statement Balance Sheet   Sales $ 17,600 Current assets $ 10,700 Debt $ 15,200   Costs 12,000 Fixed assets 25,750 Equity 21,250   Taxable income $ 5,600     Total $ 36,450     Total $ 36,450   Taxes (40%) 2,240     Net income $ 3,360

Explanation / Answer

SGR = formula = ROE*(1-dividend payout ratio) Dividend payout ratio = 40%

ROE= net income/equity 3360/21250 = 0.1581(1-40%

0.1581*0.60 =0.09486 or 9.49%

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