Question

In: Finance

*Socal Engineering has a 5% profit margin and a 0.6 dividend payout ratio. The total asset...

*Socal Engineering has a 5% profit margin and a 0.6 dividend payout ratio. The total asset turnover is 1.40 and the equity multiplier is 2.0. What is the sustainable rate of growth? How the SGR will be changed if the company changes its dividend policy and pays only 40% of the net income as dividend?

The Adam Company has sales of $498,000, cost of goods sold of $263,000, and accounts receivable of $50,000. How long on average does it take the firm’s customers to pay for their purchases?

  

A firm has $61,300 in receivables and $391,400 in total assets. The firm has a total asset turnover rate of 1.4 and a profit margin of 6.3 percent. What is the days’ sales in receivables?

Peter Inc. has sales of $489,700. Earnings before interest and taxes are equal to 16 percent of sales. For the period, the firm paid $5,200 in interest. The tax rate is 28 percent. What is the profit margin?

Solutions

Expert Solution

1.

Payout ratio = 60%

Retention ratio = 1 - 60%

= 40%

Retention ratiofor Social engineering is 40%.

Return on equity is calculated below using Du Pont Formula:

Return on equity = Equity Multiplier × Assets turnover × Profit margin

                            = 2 × 1.4 × 5%

                            = 14%

Hence, return on equity for firm is 14%

Now,  

Sustainable growth rate for the firm is calculated below using following formula:

Sustainable growth rate = Retention Ratio × return on equity

= 40% × 14%

= 5.60%

Hence, Sustainable growth rate for Hunter’s Inc. is 5.60%.

2.

Number of days it take for customer to pays for their purchase is called days sale outstanding

So,Days sales outstanding = Account receivables / (Annual credit sale / 365)

= $50,000 / (498,000 / 365)

= $50,000 / $1,364.38

= 36.65 approx 37days

it takes 37 days for customer to pays for their purchase.


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