The most recent financial statements for Bello Co. are shown here: Income Statem

Question

The most recent financial statements for Bello Co. are shown here: Income Statement Sales Costs Taxable Balance Sheet $20,900Current $12,100 Debt 16,900 14,400 Fixed assets 35,100 Equity 30,300 assets $ 6,500 Total $47,200 Tota $47,200 income Taxes (25%) 1,625 Net income 4,875 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio 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.) Sustainable growth rate

Explanation / Answer

ROE=Net income/equity

=(4875/30300)=0.160891089

Retention ratio=1-payout ratio

=(1-0.35)=0.65

Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]

=(0.160891089*0.65)/[1-(0.160891089*0.65)]

which is equal to

=11.68%(Approx).

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