The most recent financial statements for Bello Co. are shown here: Income Statem

Question

The most recent financial statements for Bello Co. are shown here: Income Statement Sales Costs Taxable Balance Sheet $19,200 Current $11,760 Debt 15,880 Equity 23,330 $39,210 assets 13,050 Fixed assets 27,450 $6,150 Total $39,210 Total income Taxes (24%) 1,476 Net income 4,674 Assets and costs are proportional to sales. bebt and equity are not. The company maintains a constant 45 percent dividend payout ratio What is the 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 This is a numeric cell, so please enter numbers only

Explanation / Answer

Retention ratio = b = 1- Dividend payout ratio = 1 -45% = 55%

Return on equity = ROE = Net income / Total equity = 4674 / 23330 = 20.034291%

Sustainable growth rate = ROE x b / (1- (ROE x b))

Sustainable growth rate = 20.034291% x 55% / (1- (20.034291% x 55%))

Sustainable growth rate = 12.38%

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