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•#2: The most recent financial statements for Live Co. are shown here:Income StatementBalance SheetSales$13,250Current Assets$10,400Debt$17,500Costs9,480Fixed assets28,750Equity 21,650Taxable income$3,770Total$39,150Total$39,150Taxes (40%)1,508Net income$2,262Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30% dividend payout ratio. No external equity financing is possible. What is the internal growth rate?5
•#3: For the company in the previous problems, what is the sustainable growth rate?7
8ROE= Net Income / Total Equity= $594 / $5,750= 0.1033Plowback ratio, b= 1 – Dividend Payout Ratio=1 – 0.4= 0.6Sustainable Growth Rate = (ROE x b)/[1-(ROE x b)]= (0.1033x0.6) / [1 – (0.1033x0.6)]=0.06607 or 6.61%Question 1 Summer Tyme, Inc.