P4-7 Calculating Sustainable Growth [LO3]

# 21

The most recent financial statements for Live Co. are shown here:

Income Statement		Balance Sheet
Sales	$13,000	Current assets	$28,032	Debt	$27,628
Costs	7,800	Fixed assets	19,616	Equity	20,020
Taxable income	$5,200	Total	$47,648	Total	$47,648
Taxes (33%)	1,716
Net income	$3,484

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 16 percent dividend payout ratio. No external equity financing is possible.

Required:

What is the sustainable growth rate? (Do not round your intermediate calculations.)

a) 6.54 %

b) 2.86 %

c) 17.62 %

d) 17.12 %

e)16.62 %

#24

P2-20 Accounting Values versus Cash Flows [LO4]

During 2009, Raines Umbrella Corp. had sales of $743,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $572,000, $94,000, and $125,000, respectively. In addition, the company had an interest expense of $103,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) Assume Raines Umbrella Corp. paid out $23,000 in cash dividends. If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what is the firm's net new long-term debt?

a) $49,000

b) $0

c) $100,000

d) $77,450

e) $25,500