The financial statements of Eagle Sport Supply are shown in the table below. For simplicity, "Costs" include interest. Assume that Eagle's assets are proportional to its sales. Assume a growth rate of 30% in revenue, expenses, and assets in 2023. The tax rate will remain constant. Income Statement Sales Costs $ 3,350 1,450 Pretax income Taxes (at 40.0%) $ 1,900 760 Net income $ 1,140 2022 Balance Sheet, Year-End 2021 Net assets $ 5,400 $ 5,100 Total $ 5,400 $ 5,100 Debt Equity Total 2022 $ 2,200 3,200 2021 $ 2,100 3,000 $ 5,400 $ 5,100 a. Assume that the dividend payout ratio is fixed at 50% and the equity-to-asset ratio is fixed at two-thirds. What is the internal growth rate for 2023? b. What is the sustainable growth rate for 2023?

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Chapter2: Financial Statements, Cash Flow,and Taxes
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The financial statements of Eagle Sport Supply are shown in the table below. For simplicity, "Costs" include interest.
Assume that Eagle's assets are proportional to its sales. Assume a growth rate of 30% in revenue, expenses, and assets in
2023. The tax rate will remain constant.
Sales
Costs
Income Statement
$ 3,350
1,450
Pretax income
Taxes (at 40.0%)
$ 1,900
760
Net income
$ 1,140
Balance Sheet, Year-End
2022
2021
2022
Net assets
$ 5,400
$ 5,100
Total
$ 5,400 $ 5,100
Debt
Equity
Total
$ 2,200
3,200
$ 5,400
2021
$ 2,100
3,000
$ 5,100
a. Assume that the dividend payout ratio is fixed at 50% and the equity-to-asset ratio is fixed at two-thirds. What is the
internal growth rate for 2023?
b. What is the sustainable growth rate for 2023?
Transcribed Image Text:The financial statements of Eagle Sport Supply are shown in the table below. For simplicity, "Costs" include interest. Assume that Eagle's assets are proportional to its sales. Assume a growth rate of 30% in revenue, expenses, and assets in 2023. The tax rate will remain constant. Sales Costs Income Statement $ 3,350 1,450 Pretax income Taxes (at 40.0%) $ 1,900 760 Net income $ 1,140 Balance Sheet, Year-End 2022 2021 2022 Net assets $ 5,400 $ 5,100 Total $ 5,400 $ 5,100 Debt Equity Total $ 2,200 3,200 $ 5,400 2021 $ 2,100 3,000 $ 5,100 a. Assume that the dividend payout ratio is fixed at 50% and the equity-to-asset ratio is fixed at two-thirds. What is the internal growth rate for 2023? b. What is the sustainable growth rate for 2023?
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