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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