Question
The financial statements of Eagle Sport Supply are shown in the table below. For simplicity, Costs include interest. Assume that Eagles assets are proportional to
The financial statements of Eagle Sport Supply are shown in the table below. For simplicity, Costs include interest. Assume that Eagles assets are proportional to its sales. Assume a growth rate of 25% in revenue, expenses, and assets in 2020. The tax rate will remain constant.
Income Statement | ||
Sales | $ | 2,150 |
Costs |
| 850 |
Pretax income | $ | 1,300 |
Taxes (at 40.0%) |
| 520 |
Net income | $ | 780 |
Balance Sheet, Year-End | |||||||||||||
| 2019 |
| 2018 |
|
| 2019 |
| 2018 | |||||
Net assets | $ | 4,200 |
| $ | 3,900 |
| Debt | $ | 1,600 |
| $ | 1,500 | |
|
|
|
|
|
|
| Equity |
| 2,600 |
|
| 2,400 | |
Total | $ | 4,200 |
| $ | 3,900 |
| Total | $ | 4,200 |
| $ | 3,900 | |
a. Assume that the dividend payout ratio is fixed at 60% and the equity-to-asset ratio is fixed. What is the internal growth rate for 2020? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Internal growth rate | % |
b. What is the sustainable growth rate for 2020? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Sustainable growth rate | % |
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