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What is the sustainable growth rate?

What is the sustainable growth rate?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Other options are: 8.11% or 14.45%

I keep getting the answer 12.24% when I do this. Can someone explain how I am not getting the correct answer?

The most recent financial statements for Bello Company are shown here: Income Statement Balance Sheet $ 14,000 $ 29,753 Sales Current assets $ 30.188 Debt Costs 8.400 Fixed assets 21,125 Equity 21,560 Таxable $ 5,600 $ 51,313 Total $ 51,313 Total income Taxes (24%) 1.344 Net income $ 4,256 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 38 percent dividend payout ratio. What is the sustainable growth rate? Multiple Choice 13.45 % 5.42% 13.95%
Transcribed Image Text:The most recent financial statements for Bello Company are shown here: Income Statement Balance Sheet $ 14,000 $ 29,753 Sales Current assets $ 30.188 Debt Costs 8.400 Fixed assets 21,125 Equity 21,560 Таxable $ 5,600 $ 51,313 Total $ 51,313 Total income Taxes (24%) 1.344 Net income $ 4,256 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 38 percent dividend payout ratio. What is the sustainable growth rate? Multiple Choice 13.45 % 5.42% 13.95%
Expert Solution
Solution:-

Return on Equity = Net Income / Equity *100

Return on Equity = $4,256 / $21,560 *100

Return on Equity = 19.74%

Retention Ratio = 1 – Dividend Payout ratio

Retention Ratio = 1 – 0.38

Retention Ratio = 0.62

 

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