Sunland Company has a net profit margin of 7.5 percent, debt ratio of 42 percent, total...
Sunland Company has a net profit margin of 7.5 percent, debt
ratio of 42 percent, total assets of $4,588,700, and sales of
$5,520,600. If the company has a dividend payout ratio of 74
percent, what is its sustainable growth rate? (Round
answer to 1 decimal place, e.g. 17.5%.)
| Sustainable growth rate | enter the sustainable growth rate in percentages rounded to 1 decimal place % |
Homework Answers
ROE = Net income / equity
Net income = Total sales * Net profit margin = $5,520,600 * 7.5% = $414,045
Debt ratio = 0.42
Debt / total assets = 0.42 = Debt / $4,588,700
Debt = $1,927,254.
Equity = Total Assets - Total Debt
Equity = $4,588,700 - $1,927,254.
Equity = $2,661,446
ROE = $414,045 / $2,661,446
ROE = 0.1556
Retention ratio (b) = 1 - dividend payout ratio = 1 - 0.74
b = 0.26
Sustainable growth rate = (ROE * b) / [1 - (ROE*b)]
= 0.0404486 / (0.95955)
= 0.042
or 4.2%
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