Profit margin = 9.2 % Capital intensity ratio = .53 Debt−equity ratio = .68 Net income...


Profit margin	=		9.2	%
Capital intensity ratio	=		.53
Debt−equity ratio	=		.68
Net income	=	$	103,000
Dividends	=	$	52,000

Based on the above information, calculate the sustainable growth rate for Southern Lights Co. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Sustainable growth rate %

Solutions

Expert Solution

ROE = (PM)(TAT)(EM)

ROE = (0.092)(1 / 0.53)(1 + 0.68)

ROE = 0.2916226 or 29.16226%

Plowback ratio = 1 - (Dividends / Net income)

Plowback ratio = 1 - ($52,000 / $103,000)

Plowback ratio = 0.4951456

Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]

Sustainable growth rate = [0.2916226(0.4951456)] / [1 – 0.2916226(0.4951456)]

Sustainable growth rate = 0.1688 or 16.88%

jeff jeffy answered 2 years ago

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