If the Hunter Corp. has an ROE of 13 and a payout ratio of 30 percent, what is i
ID: 2740275 • Letter: I
Question
If the Hunter Corp. has an ROE of 13 and a payout ratio of 30 percent, what is its sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Sustainable growth rate % The most recent financial statements for Williamson, Inc., are shown here (assuming no income taxes): Income Statement Balance Sheet Debt Equity Sales $ $8,400 Assets $14,000 $6,000 Costs 6,390 8,000 Net income $2,010 Total $14,000 Total $14,000 Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $_____ What is the external financing needed? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) External financing needed $______
Explanation / Answer
Sustainable Growth Rate=ROE*(1-Payout Ratio)/{(1-ROE)*(1-Payout Ratio)}
ROE=13% or 0.13
Payout Ratio= 30% or 0.30
Sustainable Growth Rate=0.13*(1-0.30)/{(1-0.13)*(1-0.30)}
=0.091/.609
=.1494
=14.94%
Sales=8400
Costs=6390
Net Income=2010
Assets=14000
Total Assets=14000
Debt=6000
Equity=8000
Total Debts and Liabilities= 14000
Sustainable Growth Rate=14.94%
Next year projected sales= Current year Sales+14.94% of Current year sale
=8400+8400*14.94%
=9655
New Cost is in proportion with sales increase=6390+14.94%*6390
=7345
New Assets is in proportion with sales increase=14000+14.94%*14000
=16092
Revised Income Statement
Sales
9655
Cost
7345
Net Income
2310
Revised Balance Sheet
Assets
16092
Debt
6000
Equity
10310
Total
16092
Total
16310
Since assets are more than liabilities no further external funds are required.
Sales
9655
Cost
7345
Net Income
2310
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