Abbreviated financial statements for Archimedes Levers are shown in the table be

Question

Abbreviated financial statements for Archimedes Levers are shown in the table below. Assume sales increase by 19% in 2014 and all other items, including debt, increase correspondingly. Income Statement Sales $ 5,800 Costs, including interest 4,400 Net income $ 1,400 Balance Sheet, Year-end 2013 2012 2013 2012 Assets $ 4,901 $ 4,500 Debt $ 2,001 $ 1,933 Equity 2,900 2,567 Total $ 4,901 $ 4,500 Total $ 4,901 $ 4,500 a.If the payout ratio is set at 55% and no external debt or equity is to be issued, what is the maximum possible growth rate for Archimedes? (Do not round intermediate calculations. Round your answer to 1 decimal place.) Growth rate % b.If the payout ratio is set at 55% and the firm maintains a fixed debt ratio but issues no equity, what is the maximum possible growth rate for Archimedes? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Growth rate = addition to retained earnings/initial total assets

=1400*(1-0.55)/4500

=14%

Growth rate = net income/equity*(1-dividend payout)

=1400*(1-0.55)/2900

=21.72%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.