Question 1

The sustainable growth rate:

Accepted Answer

The answer of The sustainable growth rate:
...

Question 2

Westcomb,Inc.had equity of $150,000 at the beginning of the year.At the end of the year,the company had total assets of $195,000.During the year,the company sold no new equity.Net income for the year was $72,000 and dividends were $44,640.What is Westcomb's sustainable growth rate?

Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = ROE * (1 - Dividend Payout Ratio), where ROE (Return on Equity) = Net Income / Equity at the beginning of the year, and Dividend Payout Ratio = Dividends / Net Income. First, calculate the ROE: ROE = $72,000 / $150,000 = 0.48 or 48%. Then, calculate the Dividend Payout Ratio: Dividend Payout Ratio = $44,640 / $72,000 = 0.62 or 62%. Therefore, the Sustainable Growth Rate = 0.48 * (1 - 0.62) = 0.48 * 0.38 = 0.1824 or 18.24%.

Question 3

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Boss Stores, Ine.
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $ Selected financial information ($ millions)
$\begin{array}{l}
\begin{array}{rrrr}
&2011 & 2012 & 2013 & 2014 \
\hline  \text {Sales}&\$ 287.31 & \$ 339.19 & \$ 411.78 & \$ 446.84 \
 \text {Net income}&11.22 & 16.48 & 19.70 & 12.23 \
 \text {Total assets}&268.58 & 275.30 & 318.43 & 451.32 \
 \text {Equity}&180.63 & 191.90 & 211.03 & 222.57 \
 \text {Dividends}&0.00 & 5.21 & 0.58 & 0.69 \
\hline
\end{array}
\end{array}$

-Please refer to the selected financial information for Boss Stores above.What is the actual sales growth rate for 2013?

Accepted Answer

The sales growth rate for 2013 can be calculated by taking the difference in sales between 2013 and 2012, dividing by the sales for 2012, and then multiplying by 100 to get a percentage. The calculation is $\frac{411.78 - 339.19}{339.19} \times 100 = 21.4\%$.

Question 4

Why do financial managers need to understand the implications of the sustainable rate of growth?

Accepted Answer

The answer of Why do financial managers need to understand...

Question 5

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Law Specialists, Ine.
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Selected financial information
$\begin{array}{l}
\begin{array}{rrrrr}
&2010 & 2011 & 2012 & 2013 & 2014 \
\hline\text { Profit margin $ (\%) $}&6.89 & 4.94 & 0.11 & 0.32 & 5.25 \
\text { Retention ratio $ (\%) $}&100.00 & 100.00 & 100.00 & 100.00 & 78.27 \
\text { Asset turnover $ (\mathrm{X} $ )}&2.78 & 2.47 & 2.03 & 2.00 & 2.23 \
\text { Financial leverage $ (\mathrm{X}) $}&1.69 & 1.38 & 1.16 & 1.32 & 1.52 \
\text { Growth rate in sales $ (\%) $}&22.89 & -10.05 & -28.76 & 3.55 & 26.19 \
\hline
\end{array}
\end{array}$

-Please refer to the selected financial information for Law Specialists,Inc.above.Law Specialists paid its first dividends in 2014.As an analyst,assess the company's decision to pay dividends.

Accepted Answer

The answer of $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $\(\quad...

Question 6

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Hard Knock Doors
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Selected financial information ($ thousands)
$\begin{array}{lcrrrrr}
&2008&2009&2010&2011&2012&2013\
\hline\text { Sales } & \$ 477.84 & \$ 491.62 & \$ 706.52 & \$ 792.01 & \$ 876.52 & \$ 1,088.46 \
\text { Net income } & - & 43.27 & 26.31 & 28.58 & 34.84 & 25.76 \
\text { Total assets } & - & 477.06 & 648.42 & 664.26 & 697.16 & 982.63 \
\text { Equity } & - & 346.32 & 372.63 & 400.41 & 433.60 & 457.14 \
\text { Dividends } & - & - & - & 0.80 & 1.65 & 2.22 \
\hline
\end{array}$ 
-Please refer to the selected financial information for Hard Knock Doors above.Calculate the actual and sustainable growth rates for Hard Knock Doors for each year,2010-2013.

Accepted Answer

The answer of  $\quad $ $\quad $ $\quad $...

Question 7

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Hard Knock Doors
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Selected financial information ($ thousands)
$\begin{array}{lcrrrrr}
&2008&2009&2010&2011&2012&2013\
\hline\text { Sales } & \$ 477.84 & \$ 491.62 & \$ 706.52 & \$ 792.01 & \$ 876.52 & \$ 1,088.46 \
\text { Net income } & - & 43.27 & 26.31 & 28.58 & 34.84 & 25.76 \
\text { Total assets } & - & 477.06 & 648.42 & 664.26 & 697.16 & 982.63 \
\text { Equity } & - & 346.32 & 372.63 & 400.41 & 433.60 & 457.14 \
\text { Dividends } & - & - & - & 0.80 & 1.65 & 2.22 \
\hline
\end{array}$ 
-Please refer to the selected financial information for Hard Knock Doors above.Do you think Hard Knock Doors is having a problem financing its growth? If so,what is it doing to address the problem?

Accepted Answer

The answer of  $\quad $ $\quad $ $\quad $...

Question 8

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Boss Stores, Ine.
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $ Selected financial information ($ millions)
$\begin{array}{l}
\begin{array}{rrrr}
&2011 & 2012 & 2013 & 2014 \
\hline  \text {Sales}&\$ 287.31 & \$ 339.19 & \$ 411.78 & \$ 446.84 \
 \text {Net income}&11.22 & 16.48 & 19.70 & 12.23 \
 \text {Total assets}&268.58 & 275.30 & 318.43 & 451.32 \
 \text {Equity}&180.63 & 191.90 & 211.03 & 222.57 \
 \text {Dividends}&0.00 & 5.21 & 0.58 & 0.69 \
\hline
\end{array}
\end{array}$

-Please refer to the selected financial information for Boss Stores above.What is the sustainable growth rate for 2013?

Accepted Answer

The sustainable growth rate can be calculated using the formula: 
Sustainable growth rate = (Net income ÷ Equity) x (1 - Dividend payout ratio)
For 2013, the values are: 
Net income = $19.70 million 
Equity = $211.03 million 
Dividend payout ratio = ($0.58 million ÷ $19.70 million) = 0.029
Substituting these values in the formula, we get: 
Sustainable growth rate = ($19.70 ÷ $211.03) x (1 - 0.029) = 0.0935 or 9.97%
Therefore, the correct answer is C.

Question 9

Which of the following actions would help a firm's growth problem if its actual sales growth exceeds its sustainable rate of growth?
I.Increase prices
II.Decrease financial leverage
III.Decrease dividends
IV.Prune away less-profitable products

Accepted Answer

I: Increasing prices will slow down sales growth and therefore help the firm reach a sustainable rate of growth.
III: Decreasing dividends will allow the firm to retain more earnings and use them for growth opportunities. 
IV: Pruning away less-profitable products can help the firm focus on its core products and improve profitability, which can increase sustainable growth. 
II is not necessarily related to growth but decreasing financial leverage can improve a firm's financial health and reduce risks.

Question 10

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Boss Stores, Ine.
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $ Selected financial information ($ millions)
$\begin{array}{l}
\begin{array}{rrrr}
&2011 & 2012 & 2013 & 2014 \
\hline  \text {Sales}&\$ 287.31 & \$ 339.19 & \$ 411.78 & \$ 446.84 \
 \text {Net income}&11.22 & 16.48 & 19.70 & 12.23 \
 \text {Total assets}&268.58 & 275.30 & 318.43 & 451.32 \
 \text {Equity}&180.63 & 191.90 & 211.03 & 222.57 \
 \text {Dividends}&0.00 & 5.21 & 0.58 & 0.69 \
\hline
\end{array}
\end{array}$

-Please refer to the selected financial information for Boss Stores above.What is the retention ratio for 2013?

Accepted Answer

The answer of $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $\(\quad...

Question 11

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Law Specialists, Ine.
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Selected financial information
$\begin{array}{l}
\begin{array}{rrrrr}
&2010 & 2011 & 2012 & 2013 & 2014 \
\hline\text { Profit margin $ (\%) $}&6.89 & 4.94 & 0.11 & 0.32 & 5.25 \
\text { Retention ratio $ (\%) $}&100.00 & 100.00 & 100.00 & 100.00 & 78.27 \
\text { Asset turnover $ (\mathrm{X} $ )}&2.78 & 2.47 & 2.03 & 2.00 & 2.23 \
\text { Financial leverage $ (\mathrm{X}) $}&1.69 & 1.38 & 1.16 & 1.32 & 1.52 \
\text { Growth rate in sales $ (\%) $}&22.89 & -10.05 & -28.76 & 3.55 & 26.19 \
\hline
\end{array}
\end{array}$

-Use Law Specialists's selected financial information above to answer the following questions:
a.Calculate Law Specialists's sustainable growth rate in each year.b.Comparing the company's sustainable growth rate with its actual growth rate in sales,what growth problems did the company face over this period?

Accepted Answer

The answer of $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $\(\quad...

Question 12

Komatsu has a 4.5 percent profit margin and a 15 percent dividend payout ratio.The asset turnover ratio is 1.6 and the assets-to-equity ratio (using beginning-of-period equity)is 1.77.What is Komatsu's sustainable rate of growth?

Accepted Answer

The sustainable growth rate (SGR) is calculated using the formula: SGR = ROE * (1 - Dividend Payout Ratio). ROE can be calculated as Profit Margin * Asset Turnover * Assets-to-Equity Ratio. Substituting the given values: ROE = 4.5% * 1.6 * 1.77 = 12.744%. Then, SGR = 12.744% * (1 - 0.15) = 10.8324%, which is approximately 10.83%.

Question 13

A firm has a retention ratio of 40 percent and a sustainable growth rate of 6.2 percent.Its asset turnover ratio is 0.85 and its assets-to-equity ratio (using beginning-of-period equity)is 1.80.What is its profit margin?

Accepted Answer

The answer of A firm has a retention ratio of...

Question 14

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Hard Knock Doors
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Selected financial information ($ thousands)
$\begin{array}{lcrrrrr}
&2008&2009&2010&2011&2012&2013\
\hline\text { Sales } & \$ 477.84 & \$ 491.62 & \$ 706.52 & \$ 792.01 & \$ 876.52 & \$ 1,088.46 \
\text { Net income } & - & 43.27 & 26.31 & 28.58 & 34.84 & 25.76 \
\text { Total assets } & - & 477.06 & 648.42 & 664.26 & 697.16 & 982.63 \
\text { Equity } & - & 346.32 & 372.63 & 400.41 & 433.60 & 457.14 \
\text { Dividends } & - & - & - & 0.80 & 1.65 & 2.22 \
\hline
\end{array}$ 
-Please refer to the selected financial information for Hard Knock Doors above.Is the increase in dividends between 2010 and 2013 a good idea for Hard Knock Doors?

Accepted Answer

The answer of  $\quad $ $\quad $ $\quad $...

Question 15

You constructed a pro forma balance sheet for next year and found that external financing required was negative (i.e. ,the company projected a financing surplus).Which of the following options,all else equal,would NOT correct the projected imbalance?

Accepted Answer

A negative external financing required indicates a surplus of funds. Options A, B, and C utilize this surplus by either returning funds to shareholders, reducing liabilities, or increasing assets, respectively. Option D, increasing the retention ratio, implies the company retains more earnings rather than distributing them, which does not directly utilize the surplus funds to correct the imbalance.

Question 16

Wax Music expects sales of $437,500 next year.The profit margin is 4.8 percent and the firm has a 30 percent dividend payout ratio.What is the projected increase in retained earnings?

Accepted Answer

The projected increase in retained earnings is calculated by first determining the net income, which is sales multiplied by the profit margin ($437,500 * 4.8% = $21,000). Then, calculate the retained earnings by subtracting the dividends paid out from the net income. The dividends are 30% of the net income ($21,000 * 30% = $6,300). Therefore, the increase in retained earnings is $21,000 - $6,300 = $14,700.

Question 17

$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Boss Stores, Ine.
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $ Selected financial information ($ millions)
$\begin{array}{l}
\begin{array}{rrrr}
&2011 & 2012 & 2013 & 2014 \
\hline  \text {Sales}&\$ 287.31 & \$ 339.19 & \$ 411.78 & \$ 446.84 \
 \text {Net income}&11.22 & 16.48 & 19.70 & 12.23 \
 \text {Total assets}&268.58 & 275.30 & 318.43 & 451.32 \
 \text {Equity}&180.63 & 191.90 & 211.03 & 222.57 \
 \text {Dividends}&0.00 & 5.21 & 0.58 & 0.69 \
\hline
\end{array}
\end{array}$

-Please refer to the selected financial information for Boss Stores above.What is the difference between Boss's sustainable growth rate and its actual growth rate for 2014?

Accepted Answer

The answer of $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $\(\quad...

Quiz 4: Managing Growth

The sustainable growth rate:

Westcomb,Inc.had equity of $150,000 at the beginning of the year.At the end of the year,the company had total assets of $195,000.During the year,the company sold no new equity.Net income for the year was $72,000 and dividends were $44,640.What is Westcomb's sustainable growth rate?

Why do financial managers need to understand the implications of the sustainable rate of growth?

Which of the following actions would help a firm's growth problem if its actual sales growth exceeds its sustainable rate of growth? I.Increase prices II.Decrease financial leverage III.Decrease dividends IV.Prune away less-profitable products

Komatsu has a 4.5 percent profit margin and a 15 percent dividend payout ratio.The asset turnover ratio is 1.6 and the assets-to-equity ratio (using beginning-of-period equity) is 1.77.What is Komatsu's sustainable rate of growth?

A firm has a retention ratio of 40 percent and a sustainable growth rate of 6.2 percent.Its asset turnover ratio is 0.85 and its assets-to-equity ratio (using beginning-of-period equity) is 1.80.What is its profit margin?

You constructed a pro forma balance sheet for next year and found that external financing required was negative (i.e. ,the company projected a financing surplus) .Which of the following options,all else equal,would NOT correct the projected imbalance?

Wax Music expects sales of $437,500 next year.The profit margin is 4.8 percent and the firm has a 30 percent dividend payout ratio.What is the projected increase in retained earnings?