You've collected the following information about Molino, Inc.: Sales $ 215,000 Net income $ 17,300 Dividends $ 9,400 Total debt $ 77,000 Total equity $ 59,000 a. What is the sustainable growth rate for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Respuesta :

Answer:

(a) 15.46%

(b) $11,904.11

(c) 6.15%

Explanation:

(a) Sustainable growth rate:

[tex]Return\ on\ equity\ (ROE)=\frac{Net\ income}{Total\ equity}[/tex]

[tex]Return\ on\ equity\ (ROE)=\frac{17,300}{ 59,000}[/tex]

                                                = 29.32%

Retention Ratio = 1 - Dividend Payout

                          [tex]=1-[\frac{9,400}{17,300}][/tex]

                                 = 45.66%

[tex]Sustainable\ growth\ rate=\frac{(ROE\times Retention\ Ratio)}{(1-ROE\times Retention\ Ratio)}[/tex]

[tex]Sustainable\ growth\ rate=\frac{(0.2932\times 0.4566)}{(1-0.2932\times 0.4566)}[/tex]

[tex]=\frac{0.1338}{0.8662}[/tex]

= 0.15446

= 15.46%

(b) Additional borrowing:

New Total Asset = (Total debt + Total equity) × (1 + Sustainable growth rate)

= (77,000+59,000) × (1 + 15.46%)

= 157025.4

[tex]New\ Debt=\frac{D}{D+E}\times New\ Total\ Asset[/tex]

[tex]New\ Debt=\frac{77,000}{77,000+59,000}\times 157024.4[/tex]

                         = $88904.11

Increase in Borrowing = New debt - old debt

                                     = $88,904.11 - $77,000

                                     = $11,904.11

(c) Internal growth rate:

[tex]ROA=\frac{Net\ income}{Debt+equity}[/tex]

[tex]ROA=\frac{17,300}{77,000+59,000}\times 100[/tex]

= 12.72%

[tex]Internal\ growth\ rate=\frac{(ROA\times Retention\ Ratio)}{(1-ROA\times Retention\ Ratio)}[/tex]

[tex]Internal\ growth\ rate=\frac{(0.1272\times 0.4566)}{(1-0.1272\times 0.4566)}[/tex]

[tex]=\frac{0.0580}{0.942}[/tex]

= 0.0615

= 6.15%