Graffiti Advertising, Inc. Graffiti Advertising, Inc., reported the following fi
ID: 2811574 • Letter: G
Question
Graffiti Advertising, Inc. Graffiti Advertising, Inc., reported the following financial statements. 2017 Income Statement Sales Costs of goods sold Selling & administrative Depreciation EBIT Interest EBT Taxes Net income $570,700 $273,970 $124,722 $ 54,565 $117,443 $19,538 $ 97,905 $39,162 $ 58,743 $10,700 $48,043 Dividends Addition to retained earnings GRAFFITI ADVERTISING, INC Balance Sheet as of December 31, 2017 Cash Accounts receivable Inventory $14,416 Accounts payable $21,088 Notes payable $22,765 $10,523 $16,477 $ 27,000 $153,100 $284,469 Current liabilities Current assets $58,269 Long-term debt Net fixed assets $406,300_ Owner's equity Total liabilities and Total assets $464,569 $464,569 owners' Equity Calculate the estimate of sustainable growth rate.Explanation / Answer
Return on equity =Net Income /equity
= 58743/284469
= .2065 or 20.65%
Retention ratio = addition to retained earning /net income
= 48043/58743
= .81785
Sustainable growth rate= Return on equity * retention ratio
= 20.65*.81785
= 16.89%
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