Business Finance Answers_Part_10

Business Finance Answers_Part_10 - CHAPTER 4 B-37 14. We...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 4 B-37 14. We first must calculate the ROE to calculate the sustainable growth rate. To do this we must realize two other relationships. The total asset turnover is the inverse of the capital intensity ratio, and the equity multiplier is 1 + D/E. Using these relationships, we get: ROE = (PM)(TAT)(EM) ROE = (.082)(1/.75)(1 + .40) ROE = .1531 or 15.31% The plowback ratio is one minus the dividend payout ratio, so: b = 1 – ($12,000 / $43,000) b = .7209 Now we can use the sustainable growth rate equation to get: Sustainable growth rate = (ROE × b) / [1 – (ROE × b)] Sustainable growth rate = [.1531(.7209)] / [1 – .1531(.7209)] Sustainable growth rate = .1240 or 12.40% 15. We must first calculate the ROE using the DuPont ratio to calculate the sustainable growth rate. The ROE is: ROE = (PM)(TAT)(EM) ROE = (.078)(2.50)(1.80) ROE = .3510 or 35.10% The plowback ratio is one minus the dividend payout ratio, so: b = 1 – .60 b = .40 Now we can use the sustainable growth rate equation to get: Sustainable growth rate = (ROE × b) / [1 – (ROE × b)] Sustainable growth rate = [.3510(.40)] / [1 – .3510(.40)] Sustainable growth rate = .1633 or 16.33% Intermediate 16. To determine full capacity sales, we divide the current sales by the capacity the company is currently using, so: Full capacity sales = $550,000 / .95 Full capacity sales = $578,947 The maximum sales growth is the full capacity sales divided by the current sales, so: Maximum sales growth = ($578,947 / $550,000) – 1 Maximum sales growth = .0526 or 5.26%
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Business Finance Answers_Part_10 - CHAPTER 4 B-37 14. We...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online