| Better Burgers reported the following numbers (in millions) for the years ending February 2011 and 2012. |
| 2011 | 2012 | |||||||
| Net income | $ | 1,427 | ||||||
| Dividends | 206 | |||||||
| Total assets | $ | 13,590 | 12,778 | |||||
| Total equity | 6,221 | 4,504 | ||||||
| Requirement 1: |
| What are the internal and sustainable growth rates? (Do not round intermediate calculations.Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).) |
| Internal growth rate | % | |
| Sustainable growth rate | % | |
| Requirement 2: |
| What are the internal and sustainable growth rates using ROE × b and (ROA × b) and the end of period equity (assets)? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).) |
| Internal growth rate | % | |
| Sustainable growth rate | % | |
| Requirement 3: |
| What are the growth rates if you use the beginning of period equity in this equation? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations.Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).) |
| Internal growth rate | % | |
| Sustainable growth rate | % | |
Please show all work for explanation, thank you
Requirement 1
Particular
Internal growth rate
12 %
Sustainable growth rate
28 %
Internal Growth rate = ROA x Retention Ratio
( 1- ROA) x Retention Ratio
ROA = Net Income/ Total Assets
1427/12778
=0.11
Retantion Ratio = Addition to the retained Earning/Net Income
= 1221 / 1427
=0.86
Internal Growth Rate =0.11*0.86
(1-0.11)*0.86
=0.1236
=0.12 or 12 %
Sustainable growth rate = (1-d) x ROE
d = Devidend pay out ratio
d = 206/1427
=14.43% or 0.1443
ROE = Net income / Sahre holder equity
=1427/4504
= 0.3168 or 31.68 %
SGR =(1-0.14) x 0.32
= 0.28 or 28 %
Requirement 2
Particular
Internal growth rate
8.9 %
Sustainable growth rate
8.9 %
Internal Growth rate = ROA*b / 1- (ROA*b)
ROA =0.11
b = Retaion Rato(1-Devidend Payout Ratio)
=0.86(1-0.14)
=0.74
IGR = 0.11*0.74/1-(0.11*0.74)
=0.0814/0.9186
=0.089 or 8.9 %
SGR =ROE * B
=0.32*0.28
= 8.9 % or 0.089
Requirement 3
Particular
Internal growth rate
12 %
Sustainable growth rate
19.72 %
Here Internal Growth rate would not change but SGR Woluld change
The change in SGR woulld as follow
Sustainable growth rate = (1-d) x ROE
ROE = Net income / Sahre holder equity
=1427/6221
= 0.2293 or 23 %
= (1-0.14)*0.2293
=0.1972 or 19.72 %
