Question

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)

Answer 1

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%