240 40 308 $ 597 Major Manuscripts, Inc. 2012 Balance Sheet 2,900 4,600 3,430 $

Question

240

40

308

$

597

Major Manuscripts, Inc.
2012 Balance Sheet

2,900    

4,600    

3,430    

$

9,400    

$

9,400    

Major Manuscripts, Inc., does not want to incur any additional external financing. The dividend payout ratio is constant. What is the firm's maximum rate of growth?

Major Manuscripts, Inc.
2012 Income Statement   Net sales $ 8,100   Cost of goods sold 6,915   Depreciation

240

  Earnings before interest and taxes $ 945   Interest paid

40

  Taxable Income $ 905   Taxes

308

  Net income

$

597

     Dividends $ 232

Explanation / Answer

Maximum growth rate =  ROE x (1 - dividend-payout ratio) = (597/3100)*(1 - 232/597) = 11.77% which is nearest to 11.91 percent

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