The most recent financial statements for Heng Co.are shown here:
Assets and costs are proportional to sales.The company maintains a constant 45 percent dividend payout ratio and a constant debt-equity ratio.What is the maximum increase in sales that can be sustained next year assuming no new equity is issued?

Question

The most recent financial statements for Heng Co.are shown here: 
 Assets and costs are proportional to sales.The company maintains a constant 45 percent dividend payout ratio and a constant debt-equity ratio.What is the maximum increase in sales that can be sustained next year assuming no new equity is issued?

Quizplus · Accepted Answer

Return on equity = $13,068/$74,250 = 0.176Retention ratio = 1 - .45 = .55Sustainable growth rate = (0.176 × .55)/[1 - (0.176 × .55)] = .107174Maximum increase in sales = $55,000 × .107174 = $5,894.60

The Most Recent Financial Statements for Heng Co