Question
In: Accounting
You are given the following information on Kaleb's Kickboxing: Profit margin 6% Capital intensity ratio 0.7...
You are given the following information on Kaleb's Kickboxing: Profit margin 6% Capital intensity ratio 0.7 Debt–equity ratio 0.6 Net income $99933 Dividends $15221 Calculate the sustainable growth rate (in %) (round 4 decimal places)
Solutions
Expert Solution
| 1 | Profitability rate = Net Income/Total sales | |||||
| 0.06 | = | $99,933/Sales | ||||
| Sales | = | $99,933/0.06 | ||||
| Sales | = | $16,65,550 | ||||
| 2 | Capital intensity ratio = Total Asset/Total sales | |||||
| 0.70 | = | Total Asset/$16,65,550 | ||||
| Total Asset | = | $16,65,550*0.70 | ||||
| Total Asset | = | $11,65,885 | ||||
| 3 | Debt Equity Ratio = Total Debt/Total Equity | |||||
| Debt | = | 60% of 11,65,885 = $699,531 | ||||
| Equity | = | 40% of 11,65,885 = $466,354 | ||||
| 4 | Asset utilization rate = Total sales/Total Asset | |||||
| Asset utilization rate | = | $16,65,550/$11,65,885 | ||||
| = | 1.43 | |||||
| 5 | Return on equity = Asset utilization rate*profitability rate*Debt equity rate | |||||
| ROE | = | 1.43*0.06*0.60 | ||||
| = | 0.05418 or 5.418% | |||||
| 6 | Dividend Rate = Dividend/Sales | |||||
| Dividend Rate | = | $15,221/$99,933 | ||||
| = | 0.1523 | |||||
| 7 | Retention rate | = | 1-0.1523 | |||
| = | 0.8477 | |||||
| 8 | Sustainable Growth Rate | = | ROE*Retention rate | |||
| = | 0.05418*0.8477 | |||||
| = | 0.04593 or 4.59% | |||||
ekkarill92 answered 2 years agoRelated Solutions
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