Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Plank's Plants had net income of $5,000 on sales of $62,000 last year. The firm paid a dividend of $600. Total assets at the

  

Plank's Plants had net income of $5,000 on sales of $62,000 last year. The firm paid a dividend of $600. Total assets at the end of last year were $120,000, of which $56,000 was financed by debt. Assume that ROE from last year will continue this year and no new equity was issued during the year. a. What is the firm's sustainable growth rate? (Round your Intermediate calculations to 3 decimal places and your final answer to 3 decimal places.) Sustainable growth rate b-1. If the firm grows at its sustainable growth rate, how much debt will have to be raised in the coming year? (Round your intermediate calculations to 3 decimal places and your final answer to 2 decimal places.) Debt increase b-2. What is the current debt/assets ratio? (Round your intermediate calculations to 3 decimal places and your final answer to 2 decimal places.) b-3. What will be the debt/assets ratio coming year? (Round your intermediate calculations to 3 decimal places and your final answer to 2 decimal places.) Debassets ratio coming year c-1. What would be the maximum possible growth rate if the firm did not sell any new debt or equity in the coming year and maintains the dividend payout ratio? (Round your intermediate calculations to 3 decimal places and your final answer to 2 decimal places.) The maximum possible growth rate % c-2. What would be the maximum possible growth rate if the firm did not sell any new debt or equity in the coming year and retains all earnings? (Round your intermediate calculations to 3 decimal places and your final answer to 2 decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

a Sustainable growth rateRetention RatioROE Retention RatioNet IncomeEarnings befo... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Corporate Finance

Authors: Richard Brealey, Stewart Myers, Alan Marcus

8th edition

77861620, 978-0077861629

More Books

Students also viewed these Finance questions

Question

What is a multivariate data set?

Answered: 1 week ago

Question

Complete the following acid-base reactions: (a) HCCH + NaH

Answered: 1 week ago