Dynamic Communication is a U.S. industrial company with several electronics divisions. The company has just released its 2013 annual report. Tables 18C and 18D present a summary of Dynamic's financial statements for the years 2012 and 2013. Selected data from the financial statements for the years 2009 to 2011 are presented in Table 18E .
a. A group of Dynamic shareholders has expressed concern about the zero growth rate of dividends in the last 4 years and has asked for information about the growth of the company. Calculate Dynamic's sustainable growth rates in 2010 and 2013. Your calculations should use beginning-of-year balance sheet data.
b. Determine how the change in Dynamic's sustainable growth rate (2013 compared to 2010) was affected by changes in its retention ratio and its financial leverage. (Your calculations should use beginning-of-year balance sheet data.)
Table C

Table D

Table E

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$ Million 2013 149 295 275 719 2012 $ 83 265 285 Cash and equivalents Accounts receivable nventory Total current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets Accounts payable Notes payable Accrued taxes and expenses Total current liabilities 9,350 (6,160) $3,190 S 228 0 0 228 $1,650 50 0 1,981 $2,031 8,900 (5,677) $3,223 3,856 $ 220 0 0 $ 220 $1,800 50 0 1,786 $1836 3,856 Long-term debt Common stock Additional paid-in capital Retained earnings Total shareholders' equity otal liabilities and shareholders' equity 3,0 Total revenues Operating costs and expenses Earnings before interest, taxes $3,425 2,379 $1,046 2012 $3,300 2,319 $ 981 depreciation and amortization (EBITDA) Depreciation and amortization Operating income (EBIT) Interest expense Income before taxes Taxes (40%) Net income Dividends Change in retained earnings Earnings per share Divdends per share Number of shares outstanding (millions) 483 $563 104 459 184 275 S 80 195 2.75 0.80 100 454 527 107 $ 420 168 252 $ 80 $ 172 S 2.52 S 0.80 100 2011 2010 2009 Total revenues $3,175 $3,000 433 $3,075 448 101 $ 208 S 0.80 $3,414 $1,700 Operating income (EBIT) 495 104 S 235 S 0.80 Net income Dividends per share Total assets Long-term debt Total shareholders' equity Number of shares outstanding (millions) $ 200 $0.80 $3,230 $1,650 $1,380 100 $1,750 1, 100 100