Better Burgers reported the following numbers (in millions) for the years ending
ID: 2383466 • Letter: B
Question
Better Burgers reported the following numbers (in millions) for the years ending February 2011 and 2012.
2011 2012
Net income $ 1,427
Dividends 206
Total assets $ 13,590 12,778
Total equity 6,221 4,504
Requirement 1:
What are the internal and sustainable growth rates? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)
Internal growth rate %
Sustainable growth rate %
Requirement 2:
What are the internal and sustainable growth rates using ROE × b and (ROA × b) and the end of period equity (assets)? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)
Internal growth rate %
Sustainable growth rate %
Requirement 3:
What are the growth rates if you use the beginning of period equity in this equation? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)
Internal growth rate %
Sustainable growth rate %
Explanation / Answer
workings :
**Retention ratio = (1427-206) /1427
= 1221/1427
= .8556 or 85.56%
1Average assets = (13590 +12778)/2
= $ 13184
Return on asset = 1427 / 13184 = .1082 or10.82%
**Average equity = (6221+4504 )/2 =
= $ 5362.5
Return on equity = 1427 /5362.5
= 26.61%
Internal growth rate = [ROA *b] / [1- (ROA *b) ]
= [10.82 * .8556 ] /[ 1- (.1082 *.8256 )]
= 9.258 / [1-.09258]
= 9.258 / .90742
= 10.20%
sustainable groth rate = ROE * b
= 26.61 * 85.56%
= 22.77%
2)ROA = 1427 / 12778 = 11.17%
ROE = 1427 / 4504 = 31.68%
IGR = [11.17 * .8556 ] /[1- (.1177*.8556)]
= [9.5571 ] / [1- .1007]
= 9.5571 / .8993
= 10.63%
SGR= 31.68 * .8556 = 27.11%
3)ROA = 1427 /13590 = 10.50%
ROE = 1427 / 6221 = 22.94%
IGR = [10.50 *.8556 ] / [1-(.1050* .8556)]
= [8.9838 ] / [1-.08984]
= 8.9838 /.91016
= 9.87%
SGR = 22.94 *.8556
=19.63%
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