Ch 4 problem

# Ch 4 problem - Projected net income = profit margin X...

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Comprehensive Problem XYZ has the following financial information for 2009: Sales = \$2M, Net Inc. = \$O.4M, Div. = \$0.1 M C.A. = \$O.4M, F.A. = \$3.6M C.L. = \$0.2M, LTD = \$1 M, C.S. = \$2M, R.E. = \$0.8M What is the sustainable growth rate? If 2010 sales are projected to be \$2.4M, what is the amount of external financing needed, assuming XYZ is operating at full capacity, and profit margin and payout ratio remain constant? 4-23 ROE = net income / shareholders' equity = \$AM / (\$2M + \$.8M) = .1429 Payout ratio = dividends/net income = .1 M/AM = .25 Plowback ratio (b) 1 - payout ratio = 1 - .25 = .75 Sustainable growth rate = ROE X b /1 - ROE X b = .1429 X .75/ (1 - (.1429 X .75)} = .12 Profit margin = net income/sales = AM/2M = .2
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Unformatted text preview: Projected net income = profit margin X projected sales =.2 X \$2AM = \$A8M Projected addition to retained earnings = projected net income X (1 - payout ratio) = \$A8M X (1-.25) = \$A8M X .75 = \$.36M % change in sales = (\$2AM - \$2M}/\$2M = .2 2009 total assets = \$AM + \$3.6M = \$4M Projected total assets = \$4M X 1.2 = \$4.8M Projected C.L. = \$.2M X 1.2 = \$.24M Projected RE. = 2006 RE. + projected addition to RE. = \$.8M + \$.36M = \$1.16M Projected liabilities and owners' equity = projected C.L. + LTD + C.S. + projected RE. = \$.24M + \$1M + \$2M + \$1.16M = \$4AM External Financing Needed = projected assets - projected liabs. and OE = \$4.8M - \$4AM = \$AM 23...
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