15 6 Help Sas 4 Problem 18-16 Feasible Growth Rates (LO3) Eagle Sports Supply ha

Question

15 6 Help Sas 4 Problem 18-16 Feasible Growth Rates (LO3) Eagle Sports Supply has the followin g financial statements. Assume that Eagle's assets are proportional to its sales. 20 points $1,500 Taxes Set incone $ 940 2016 .990 2017 2017 4,200 Debt Equity 3.9004.200Total ssets ,200 Total 4,200 References a. what is the internal growth rate of Eagle Sports if the dividend payout ratio is fixed at 60% and the equity-to-asset ratio k fod at 2/3? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places-) b. What is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

Sustainable growth rate = plowback ratio × ROE = (1-dividend payout ratio)*(Net Income/Sales*Sales/Average Total Assets*Average Total Assets/Average Equity)=(1-60%)*(940/1500*1500/((3900+4200)/2)*((3900+4200)/2)/((2700+2900)/2)) = 13.4286%

Internal Growth rate=plowback ratio × ROE x Equity/Assets=Sustainable growth rate x Equity/Assets=13.4286%*2/3=8.9524%

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