You\'ve collected the following information about Ema, Inc.: Requirement 1: What

Question

You've collected the following information about Ema, Inc.: Requirement 1: What is the sustainable growth rate for the company? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Requirement 2: Assuming it grows at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Requirement 3: What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Sustainable growth rate formula = retention Ratio * Return on Average Shareholder's fund

=59.26%*10.89%

sustainable growth rate =6.45%   

Wroking Note:

retention Ratio = Retained Earnings/Income after tax

=  (18900-7700)/18900

=59.26%

Return on Equity = net income /Average Shareholder's fund

Develop formula as follows

= Net income/Assets *Assets/ Average Shareholder's fund

=Net income/sales * sales/Assets*(Debt+Average Shareholder's fund)/Average Shareholder's fund

=(18900/340,000)*(340,000/245600)*(245600/173600)

Return on Equity = 10.89%

Average Shareholder's fund = (Opening equity +Ending Equity)/2

=(103000+(130000+11200)/2

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