Use the following financial statements for Lake of Egypt Marina, Inc. Calculate

Question

Use the following financial statements for Lake of Egypt Marina, Inc.

Calculate the internal and sustainable growth rate for Lake of Egypt Marina, Inc.

Internal growth rate ______%

Sustainable growth rate______%

LAKE OF EGYPT MARINA, INC. Balance Sheet as of December 31, 2018 and 2017 (in millions of dollars) 2018 2017 2018 2017 Assets Liabilities and Equity Current assets: Current liabilities: Cash and marketable securities $ 75 $ 62 Accrued wages and taxes $ 43 $ 46 Accounts receivable 121 116 Accounts payable 93 83 Inventory 206 196 Notes payable 83 73     Total $ 402 $ 374           Total $ 219 $ 202 Fixed assets:    Long-term debt: $ 303 $ 283     Gross plant and equipment $ 586 $ 477 Stockholders’ equity:      Less: Depreciation 128 103          Preferred stock (5 million shares) $ 5 $ 5     Net plant and equipment $ 458 $ 374          Common stock and paid-in surplus 65 65          (65 million shares)     Other long-term assets 53 52    Retained earnings 321 245       Total $ 511 $ 426        Total $ 391 $ 315 Total assets $ 913 $ 800 Total liabilities and equity $ 913 $ 800

Explanation / Answer

Internal growth rate = retention ratio* return on assets = (1- dividend payout ratio)* return on assets

=(1-DPS/EPS)*(Net Income/ Avg total assets of 2017 & 2018)

=(1-1/2.169)*[146/(913+800)]= 4.5936%

Sustainable growth rate = Retention ratio* return on equity = (1- dividend payout ratio)* (Net income/ Begining of the year book value of equity)

=(1-DPS/EPS)*(Net Income/ BV of equity at end of 2017)= (1-1/2.169)*(146/315)= 24.98%

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

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