1. Country Comfort, 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 $63,000 and dividends were $44,500. What is the sustainable growth rate?
10.3 percent
10.7 percent
11.6 percent
12.7 percent
12.3 percent
2. Which one of these is a correct method of computing the retention ratio?
1 – Plowback ratio .
Change in retained earnings / Cash dividends.
1 + Dividend payout ratio.
(Change in retained earnings + Cash dividends) / Net income.
1 – (Cash dividends / Net income).
3. The internal growth rate of a firm is best described as the:
Minimum growth rate achievable assuming a 100 percent retention ratio.
Minimum growth rate achievable if the firm maintains a constant equity multiplier.
Maximum growth rate achievable excluding external financing of any kind.
Maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio.
Maximum growth rate achievable with unlimited debt financing.
4. Martin Aerospace is currently operating at full capacity based on its current level of assets. Sales are expected to increase by 4.5 percent next year, which is the firm's internal rate of growth. Net working capital and operating costs are expected to increase directly with sales. The interest expense will remain constant at its current level. The tax rate and the dividend payout ratio will be held constant. Current and projected net income is positive. Which one of the following statements is correct regarding the pro forma statement for next year?
The pro forma profit margin is equal to the current profit margin.
Retained earnings will increase at the same rate as sales.
Total assets will increase at the same rate as sales.
Long-term debt will increase in direct relation to sales.
Owners' equity will remain constant.