Week 2 - Demello Case 4 - Fin 440 Tim Gillespie

Week 2 - Demello Case 4 - Fin 440 Tim Gillespie - Tim...

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Tim Gillespie FIN 440 Demello Case #4 2. If Oats ‘R’ Us is operating its fixed assets at full capacity, what growth rate can it support without the need for any additional external financing? IGR = ROE x (1 – Dividend Payout Ratio) x (Book Value of Equity)/(Total Assets) ROE = Net Income / Equity ROE = 46% Dividend Pay Ratio = 40% Book Value of Equity = 477,964 Total Assets = 1206916 IGR = 10.93% SGR = ROE *(1- Dividend Payout Ratio) / (ROE *(1-Dividend Payout Ratio) SGR = 38.12% 4. Initially Jim assumes that the firm is operating at full capacity. How much additional financing will it need to support revenue growth rates ranging from 25% to 40% per year? Oats Unlimited Partial Income Statement For the Year Ended Dec. 31st Growth Rate 2004 2003 2002 25% 30% 35% 40% Net Income 219,900 170,040 122,400 274,875 285,870 296,865 307,860 Retained Earnings 131,940 102,024 73,440 164,925 171,522 178,119 184,716 Retention Ratio 0.6 0.6 0.6 Dividends 109,950 114,348 118,746 123,144 Partial Balance Sheet For the Year Ended Dec. 31st Increase in Asset 2005 Assets 2004 2003 2002 25% 30% 35% 40% Total Assets 1,206,916 1,072,376 968,000 301,729 362,075 422,421 482,766 Liabilities and Owner's Equity Accounts Payable 135,000 151,352 128,000 33,750 40,500 47,250 54,000 Notes Payable 275,000
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This note was uploaded on 02/25/2012 for the course FINANCE 440 taught by Professor Jones during the Spring '12 term at Regis University.

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