Question 22 Given the financial statements below for Dragonfly Enterprises, what
ID: 2419114 • Letter: Q
Question
Question 22
Given the financial statements below for Dragonfly Enterprises, what would be the sustainable growth rate (SGR) if the company decided to change the dividend payout rate to 47.8%? Enter your answer as the nearest tenth of a percent (e.g., 12.3), but do not include the % sign.
Dragonfly Enterprises
Income Statement ($ Million)
2011
Sales
370
Cost of Goods Sold
226
Selling, General, & Admin Exp.
62
Depreciation
20
Earnings Before Interest & Taxes
62
Interest Expense
12
Taxable Income
50
Taxes at 40%
20
Net Income
30
Balance Sheets as of 12-31
Assets
2010
2011
Cash
10
10
Account Receivable
46
50
Inventory
43
45
Total Current Assets
99
105
Net Fixed Assets
166
195
Total Assets
265
300
Liabilities and Owners Equity
2010
2011
Accounts Payable
26
30
Notes Payable
0
0
Total Current Liabilities
26
30
Long-Term Debt
140
150
Common Stock
22
22
Retained Earnings
77
98
Total Liab. and Owners Equity
265
300
Dragonfly Enterprises
Income Statement ($ Million)
2011
Sales
370
Cost of Goods Sold
226
Selling, General, & Admin Exp.
62
Depreciation
20
Earnings Before Interest & Taxes
62
Interest Expense
12
Taxable Income
50
Taxes at 40%
20
Net Income
30
Balance Sheets as of 12-31
Assets
2010
2011
Cash
10
10
Account Receivable
46
50
Inventory
43
45
Total Current Assets
99
105
Net Fixed Assets
166
195
Total Assets
265
300
Liabilities and Owners Equity
2010
2011
Accounts Payable
26
30
Notes Payable
0
0
Total Current Liabilities
26
30
Long-Term Debt
140
150
Common Stock
22
22
Retained Earnings
77
98
Total Liab. and Owners Equity
265
300
Explanation / Answer
Sustainable Growth Rate Return on EquityX(1-dividend payout ratio) Return on Equity=Net Income/Shareholder Equity 30/98+22 25 % Dividend Payout ratio=Total Dividends/Net Income 30*47.8%/30 47.8 Sustainable Growth Rate= .25*(1-.478)*100 13.1 Ans.
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