You are given the following information on Kaleb's Kickboxing:
Profit margin 6% Capital intensity ratio 0.7...
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Accounting
You are given the following information on Kaleb's Kickboxing:Profit margin 6% Capital intensity ratio 0.7 Debt–equity ratio 0.6Net income $99933 Dividends $15221 Calculate the sustainable growthrate (in %) (round 4 decimal places)
Answer & Explanation
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4.1 Ratings (687 Votes)
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%
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