GEN CMB LL CORP FINC; CNCT
11th Edition
ISBN: 9781259724145
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 3, Problem 30QP
Summary Introduction
To determine: The Company’s sustainable growth rate and sustainable growth rate
Sustainable Growth Rate:
Sustainable growth rate refers to the maximum growth that a firm can have without using external funds or increasing the financial leverage of the company.
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Mars Corporation is interested in estimating the expected rate of sales growth
sustainability and additional financing needed to support improvements
fast sales next year. Last year, revenue was $5.5 million; net profit is
$500,000; investment in assets is $2,500,000; payables and accruals are $1,000,000; and
shareholder equity at the end of the year is $1,500,000 (that is, the equity at the beginning of the year
of $1,000,000 plus retained earnings of $500,000). The business does not pay
dividends and does not expect to pay dividends in the future.
a. Estimate sustainable sales growth rate for Mars
Corporation based on the information provided in this issue. Include
also the interpretation of the results of your calculations at point a.
Mars Corporation is interested in estimating the expected rate of sales growth
sustainability and additional financing needed to support improvements
fast sales next year. Last year, revenue was $5.5 million; net profit is
$500,000; investment in assets is $2,500,000; payables and accruals are $1,000,000; and
shareholder equity at the end of the year is $1,500,000 (that is, the equity at the beginning of the year
of $1,000,000 plus retained earnings of $500,000). The business does not pay
dividends and does not expect to pay dividends in the future.
b. Calculate the net profit of Mars Corporation with the condition of the net profit margin is 5 percent. What is the value of equity at the end? Also calculate the new sustainable sales growth. Give your opinion
Mars Corporation is interested in estimating the expected rate of sales growth
sustainability and additional financing needed to support improvements
fast sales next year. Last year, revenue was $5.5 million; net profit is
$500,000; investment in assets is $2,500,000; payables and accruals are $1,000,000; and
shareholder equity at the end of the year is $1,500,000 (that is, the equity at the beginning of the year
of $1,000,000 plus retained earnings of $500,000). The business does not pay
dividends and does not expect to pay dividends in the future.
c. Compute forecasted sales and changes in sales first. What is your estimate of the funds
additions needed next year to support the upgrade
sales by 20 percent? Also include the interpretation of the results of the calculations
you at this point C.
d. Compute forecasted sales if sales growth
which is expected to be around 45 percent. What is your estimate of the extra funds needed if the expected sales growth is about 45 percent? Give…
Chapter 3 Solutions
GEN CMB LL CORP FINC; CNCT
Ch. 3 - Financial Ratio Analysis A financial ratio by...Ch. 3 - Industry-Specific Ratios So-called same-store...Ch. 3 - Sales Forecast Why do you think most long-term...Ch. 3 - Sustainable Growth In the chapter, we used...Ch. 3 - EFN and Growth Rate Broslofski Co. maintains a...Ch. 3 - Common-Size Financials One tool of financial...Ch. 3 - Asset Utilization and EFN One of the implicit...Ch. 3 - Comparing ROE and ROA Both ROA and ROE measure...Ch. 3 - Ratio Analysis Consider the ratio EBITD/Assets....Ch. 3 - Return on Investment A ratio that is becoming more...
Ch. 3 - Use the following information to answer the next...Ch. 3 - Prob. 12CQCh. 3 - Use the following information to answer the next...Ch. 3 - Use the following information to answer the next...Ch. 3 - Use the following information to answer the next...Ch. 3 - DuPont Identity If Wilkinson, Inc., has an equity...Ch. 3 - Equity Multiplier and Return on Equity Synovec...Ch. 3 - Using the DuPont Identity Y3K, Inc., has sales of...Ch. 3 - EFN The most recent financial statements for...Ch. 3 - Sales and Growth The most recent financial...Ch. 3 - Sustainable Growth If the Hunter Corp. has a ROE...Ch. 3 - Sustainable Growth Assuming the following ratios...Ch. 3 - Calculating EFN The most recent financial...Ch. 3 - External Funds Needed Dahlia Colby, CFO of...Ch. 3 - Sustainable Growth Rate The Wintergrass Company...Ch. 3 - Return on Equity Firm A and Firm B have debt-total...Ch. 3 - Ratios and Foreign Companies Prince Albert Canning...Ch. 3 - External Funds Needed The Optical Scam Company has...Ch. 3 - Days Sales in Receivables A company has net income...Ch. 3 - Ratios and Fixed Assets The Whisenhunt Company has...Ch. 3 - Calculating the Cash Coverage Ratio Panda Inc.s...Ch. 3 - Prob. 17QPCh. 3 - Prob. 18QPCh. 3 - Prob. 19QPCh. 3 - Fixed Assets and Capacity Usage For the company in...Ch. 3 - Calculating EFN The most recent financial...Ch. 3 - Prob. 22QPCh. 3 - Prob. 23QPCh. 3 - EFN and Internal Growth Redo Problem 21 using sale...Ch. 3 - Prob. 25QPCh. 3 - Prob. 26QPCh. 3 - Prob. 27QPCh. 3 - Sustainable Growth Rate Based on the results in...Ch. 3 - Prob. 29QPCh. 3 - Prob. 30QPCh. 3 - Prob. 1MCCh. 3 - Prob. 2MCCh. 3 - Prob. 3MCCh. 3 - Prob. 4MCCh. 3 - Prob. 5MC
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