he most recent financial statements for Bello Co. are shown here: Income Stateme

Question

he most recent financial statements for Bello Co. are shown here: Income Statement Balance Sheet Sales $ 18,900 Current assets $ 11,700 Debt $ 15,700 Costs 12,800 Fixed assets 26,500 Equity 22,500 Taxable income $ 6,100 Total $ 38,200 Total $ 38,200 Taxes (21%) 1,281 Net income $ 4,819 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 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.)

Explanation / Answer

ROE=net income/total equity

=(4819/22500)=0.2141778

Retention ratio=1-dividend payout

=(1-0.3)=0.7

Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]

(0.2141778*0.7)/[1-(0.2141778*0.7)]

which is equal to

=17.64%(Approx).

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