The most recent financial statements for Tran Company are shown here: Income Statement Sales Costs $ 43,100 Current assets 35,600 Fixed assets Balance Sheet $ 17,660 Long-term debt 68,400 Equity $ 37,120 48,940 Taxable income $7,500 Total $ 86,060 Total $ 86,060 Taxes (22%) 1,650 Net income $ 5,850 Assets and costs are proportional to sales. The company maintains a constant 40 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum dollar increase in sales that can be sustained assuming no new equity is issued? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum dollar increase
The most recent financial statements for Tran Company are shown here: Income Statement Sales Costs $ 43,100 Current assets 35,600 Fixed assets Balance Sheet $ 17,660 Long-term debt 68,400 Equity $ 37,120 48,940 Taxable income $7,500 Total $ 86,060 Total $ 86,060 Taxes (22%) 1,650 Net income $ 5,850 Assets and costs are proportional to sales. The company maintains a constant 40 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum dollar increase in sales that can be sustained assuming no new equity is issued? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum dollar increase
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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Transcribed Image Text:The most recent financial statements for Tran Company are shown here:
Balance Sheet
$ 17,660 Long-term debt
68,400 Equity
Income Statement
$ 43,100 Current assets
35,600 Fixed assets
$ 37,120
48,940
Sales
Costs
$ 7,500
$ 86,060
Total
$ 86,060
Taxable income
Total
Taxes (22%)
1,650
Net income
$ 5,850
Assets and costs are proportional to sales. The company maintains a constant 40
percent dividend payout ratio and a constant debt-equity ratio. What is the maximum
dollar increase in sales that can be sustained assuming no new equity is issued? (Do not
round intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
Maximum dollar increase
Expert Solution
Step 1
The sustainable growth rate (SGR) is the highest rate at which a company's earnings may expand without requiring more investment, either in debt or stock.
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Follow-up Question
I copied the formulas used here and I'm getting a wrong answer on my homework.
Sales: 57000
Costs: 24600
tax rate 25%
Equity 89000
Payout Ratio 25%Max dollar increase = 11627.19 (WRONG)
Can you please help explain why I'm not landing on the correct answer?
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