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a. Assume that the dividend payout ratio is fixed at 50% and the equity-to-asset ratio is fixed at two-thirds. What is the internal growth rate for 2023? b. What is the sustainable growth rate for 2023?

a. Assume that the dividend payout ratio is fixed at 50% and the equity-to-asset ratio is fixed at two-thirds. What is the internal growth rate for 2023? b. What is the sustainable growth rate for 2023?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The financial statements of Eagle Sport Supply are shown in the table below. For simplicity, "Costs" include interest. Assume that Eagle's assets are proportional to its sales. Assume a growth rate of 35% in revenue, expenses, and assets in 2023. The tax rate will remain constant. Sales Costs Income Statement $ 4,750 2,150 Pretax income Taxes (at 40.0%) $ 2,600 1,040 Net income $ 1,560 Balance Sheet, Year-End 2022 2021 2022 2021 Net assets $ 6,800 $ 6,500 Total $ 6,800 $ 6,500 Debt Equity Total $ 2,900 3,900 $ 2,800 3,700 $ 6,800 $ 6,500 a. Assume that the dividend payout ratio is fixed at 50% and the equity-to-asset ratio is fixed at two-thirds. What is the internal growth rate for 2023? b. What is the sustainable growth rate for 2023? Note: For all requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. a. Internal growth rate b. Sustainable growth rate % %
Transcribed Image Text:The financial statements of Eagle Sport Supply are shown in the table below. For simplicity, "Costs" include interest. Assume that Eagle's assets are proportional to its sales. Assume a growth rate of 35% in revenue, expenses, and assets in 2023. The tax rate will remain constant. Sales Costs Income Statement $ 4,750 2,150 Pretax income Taxes (at 40.0%) $ 2,600 1,040 Net income $ 1,560 Balance Sheet, Year-End 2022 2021 2022 2021 Net assets $ 6,800 $ 6,500 Total $ 6,800 $ 6,500 Debt Equity Total $ 2,900 3,900 $ 2,800 3,700 $ 6,800 $ 6,500 a. Assume that the dividend payout ratio is fixed at 50% and the equity-to-asset ratio is fixed at two-thirds. What is the internal growth rate for 2023? b. What is the sustainable growth rate for 2023? Note: For all requirements, do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. a. Internal growth rate b. Sustainable growth rate % %
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