Exhibit 19-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
You are provided with the following information about MaxCorp. $\begin{array}{lr}
\text { Net sales } & 5000 \
\text { Total Assets } & 3000 \
\text { Depreciation } & 260 \
\text { Net Income } & 600 \
\text { Long term Debt } & 2000 \
\text { Equity } & 2160 \
\text { Dividends } & 160
\end{array}$
-Refer to Exhibit 19-4. Calculate the sustainable growth rate.
A) 27.8%
B) 30.4%
C) 20.4%
D) 24.8%
E) 17.8%

Question

Quizplus · Accepted Answer

The sustainable growth rate can be calculated using the formula: $$ \text{Sustainable Growth Rate} = \text{ROE} \times \text{(1 - Dividend Payout Ratio)} $$ where $$ \text{ROE} = \frac{\text{Net Income}}{\text{Equity}} $$ and $$ \text{Dividend Payout Ratio} = \frac{\text{Dividends}}{\text{Net Income}}. $$ Plugging in the numbers from the information provided: $$ \text{ROE} = \frac{600}{2160} = 0.2778 $$ or 27.78%, and $$ \text{Dividend Payout Ratio} = \frac{160}{600} = 0.2667 $$ or 26.67%. Therefore, the sustainable growth rate is: $$ 0.2778 \times (1 - 0.2667) = 0.2778 \times 0.7333 = 0.2039 $$ or 20.4%.

Exhibit 19-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Exhibit 19-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)