The most recent financial statements for Heng Co. are shown here:
Assets and costs are proportional to sales. The company maintains a constant 45 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales that can be sustained next year assuming no new equity is issued?
Return on equity = $13,068/$74,250 = 0.176 Retention ratio = 1 - .45 = .55 Sustainable growth rate = (0.176 × .55)/[1 - (0.176 × .55)] = .107174 Maximum increase in sales = $55,000 × .107174 = $5,894.60
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