You’ve collected the following information about Draiman, Inc.: You’ve collected

Question

You’ve collected the following information about Draiman, Inc.:

You’ve collected the following information about Draiman, Inc.:

You've collected the following information about Draiman, Inc.: 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.) 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.) 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

ROE = Net iIncome /TotalEquity =$14,200 / $63,000 22.54% Retention ratio = b = (14200-9100)/14200 35.92% Sustainable growth rate = (ROE × b) / [1 – (ROE × b)] = (22.54% ×35.92%) / [1 – (22.54%×35.92%)] 8.81% If the company grows at the sustainable growth rate, the new level of total assets is: New TA = 1.0881($82000 + 63,000) = $20673.58 157772 New TD =(82000/(82000+63000))*157772 89222.8 And the additional borrowing will be: Additional borrowing = 89222.8-82000 =7222.80 7222.80 ROA=14200/(82000+63000) =9.79% 9.79% Internal growth rate = (ROA × b) / [1 – (ROA × b)] == [9.79%*35.92%] / [1 – (9.79%*35.92%)] =3.65% 3.65%

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