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RPJ co has net income of $2,937, a profit margin of 6.3 percent, a retention ratio of 45 percent, total assets of $52,800, and total debt of $24,300. Assets, current liabilities, and costs are proportional to sales. The company maintains a constant dividend payout ratio and debt-equity ratio and is operating at full capacity. What is the maximum dollar Increase In sales that can be sustalned next year assuming no new equity is Issued?
a. $2151.
b. $1,211.
c. $2.804.
d. $2.267.
e. $1,667.

Respuesta :

Tundexi

Answer:

d. $2.267.

Explanation:

We have to calculate first sustainable growth rate

For sustainable growth rate, we need ROE & Retention Ratio

Total Assets          52,800

Less: Total debt    24,300

Total Equity           28,500

ROE= Net income / Equity

ROE= 2937 / 28500 * 100

ROE= 10.305%

Retention Ratio = 45 %

Hence, Sustainable Growth Rate = (ROE * b) / (1-ROE*b)

Sustainable Growth Rate = (10.31% * 0.45)/(1-{10.31% * 0.45})

Sustainable Growth Rate = 4.863%

Profit Margin = Net Income / Sales * 100

6.3 = 2,937 / Sales * 100

Sales = $46,619

Therefore Maximum dollar increase in sales = Sales * Sustainable growth rate

= $46,619 * (4.863%)

= $2,267.08

Therefore, Maximum dollar increase = $2267.08

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