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The most recent financial statements for Weyland Co. are shown here:INCOME STATEMENT BALANCE SHEETSales $38,800 Current Assets $23,600 Long-term debt $46,500Costs $29,400 Fixed Assets $79,000 Equity $56,100Taxable Income $9,400 Total = $102,600 Total $102,600Taxes (34%) 3,196Net Income $6,204Assets and costs are proportional to sales. The company maintains a constant 20 percent dividend payout ratio and a constant debt-equity ratio.What is the maximum increase in sales that can be sustained assuming no new equity is issued? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

Respuesta :

jepessoa

Answer:

$3,765.82

Explanation:

first determine the current ROE = net income / equity = $6,204 / $56,100 = 0.110588235

now the plowback ratio = 1 - payout ratio = 1 - 20% = 0.8

the sustainable growth rate = (ROE x plowback ratio) / [1 -  (ROE x plowback ratio)] = (0.110588235 x 0.8) / [1 -  (0.110588235 x 0.8)] = 0.088470588 / (1 - 0.088470588) = 0.088470588 / 0.911529411 = 0.097057304

maximum dollar increase = $38,800 x 0.097057304  = $3,765.82