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

Question

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

The most recent financial statements for Shinoda Manufacturing Co. are shown below Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 41 percent dividend payout ratio. No external equity financing is possible. Required: What is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Sustainable growth rate %

Explanation / Answer

Return on equity = Net income / Total equity = 12493 / 63700 = 0.1961 i.e., 0.1961 * 100 = 19.61 %

b = retention ratio = 1 - dividend payout = 1 - 0.41 = 0.59

   Sustainable growth rate = Retention ratio * Return on equity

= 0.59* 19.61

= 11.5699 i.e., 11.57 % (approx).

Conclusion:- The Sustainable growth rate = 11.57 %

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