The most recent financial statements for Shinoda Manufacturing Co. are shown below: Income Statement Balance Sheet Sales $ 64,100 Current assets $ 27,500 Debt $ 43,700 Costs 44,730 Fixed assets 80,400 Equity 64,200 Taxable income $ 19,370 Total $ 107,900 Total $ 107,900 Tax (30%) 5,811 Net Income $ 13,559 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 42 percent dividend payout ratio. No external equity financing is possible. Required: What is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Sustainable growth rate % Explanation: To calculate the sustainable growth rate, we need to find the ROE and the plowback ratio. The ROE for the company is: ROE = Net income / Equity ROE = $13,559 / $64,200 ROE = .2112 or 21.12% The computation of the plowback ratio: b = 1 – .42 b = .58 The sustainable growth rate is: Sustainable growth rate = [(ROE)(b)] / [1 – (ROE)(b)] Sustainable growth rate = [(.2112)(.58)] / [1 – (.2112)(.58)] Sustainable growth rate = .1396, or 13.96%

The most recent financial statements for Shinoda Manufacturing Co. are shown below:

Income Statement			Balance Sheet
Sales	$	64,100	Current assets	$	27,500	Debt	$	43,700
Costs		44,730	Fixed assets		80,400	Equity		64,200
Taxable income	$	19,370	Total	$	107,900	Total	$	107,900
Tax (30%)		5,811
Net Income	$	13,559

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 42 percent dividend payout ratio. No external equity financing is possible.

Required:

What is the sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Sustainable growth rate

%

Explanation:

To calculate the sustainable growth rate, we need to find the ROE and the plowback ratio. The ROE for the company is:

ROE	=	Net income / Equity
ROE	=	$13,559 / $64,200
ROE	=	.2112 or 21.12%

The computation of the plowback ratio:

b = 1 – .42

b = .58

The sustainable growth rate is:

Sustainable growth rate	=	[(ROE)(b)] / [1 – (ROE)(b)]
Sustainable growth rate	=	[(.2112)(.58)] / [1 – (.2112)(.58)]
Sustainable growth rate	=	.1396, or 13.96%