Derive the substainable growth rate formula from EFN formula.

Substainable Growth Rate formula ROE xb Stabstainable Growth Rate 1-R06 xb EFN(External Financing Needed) can be calculated ) * Sales Spon Liab xa sales -(PMx Projected sde ) Sales (1-d) 1. Assets Soles X 2. EFN interal F ASL - (g gA - NI( 1 +9).b - 9.SL -g.si da payout ratio g=growth rate A = Assets SL = Spontaneous Liabilities beid (retantion ratio) action Derive the Substainable Growth rate formula from EFN formula. THE SUSTAINABLE GROWTH RATE The sustainable growth rate tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio. Using the Hoffman Co. ROE 66 / 250 = .264 b = .667 ROExb 1 - ROE xb Sustainable Growth Rate .264 x.667 1-264x.667 = 21.36% - 2136 PERCENT OF SALES AND EFN External Financing Needed (EFN) can also be calculated as: *ASales - Spon Liab Assets -x ASales -(PM Projected Sales)(1 - d) Sales Sales = (3x 250) - (0.3x 250) - (0.132 x1250x0.667) = $565 = = Substainable Growth Rate formula ROE xb Stabstainable Growth Rate 1-R06 xb EFN(External Financing Needed) can be calculated ) * Sales Spon Liab xa sales -(PMx Projected sde ) Sales (1-d) 1. Assets Soles X 2. EFN interal F ASL - (g gA - NI( 1 +9).b - 9.SL -g.si da payout ratio g=growth rate A = Assets SL = Spontaneous Liabilities beid (retantion ratio) action Derive the Substainable Growth rate formula from EFN formula. THE SUSTAINABLE GROWTH RATE The sustainable growth rate tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio. Using the Hoffman Co. ROE 66 / 250 = .264 b = .667 ROExb 1 - ROE xb Sustainable Growth Rate .264 x.667 1-264x.667 = 21.36% - 2136 PERCENT OF SALES AND EFN External Financing Needed (EFN) can also be calculated as: *ASales - Spon Liab Assets -x ASales -(PM Projected Sales)(1 - d) Sales Sales = (3x 250) - (0.3x 250) - (0.132 x1250x0.667) = $565 = =