The Shamrock Vegetable Company has the following results. Net sales ............ $6,000,000 Net total assets ..........4,000,000 Depreciation
Question:
The Shamrock Vegetable Company has the following results.
Net sales ............ $6,000,000
Net total assets ..........4,000,000
Depreciation ........... 160,000
Net income ............ 400,000
Long-term debt .........2,000,000
Equity ..............1,160,000
Dividends ........... 160,000
a. Compute Shamrock’s ROE directly. Confirm this using the three components.
b. Using the ROE computed in Part a, what is the expected sustainable growth rate for Shamrock?
c. Assuming the firm’s net profit margin went to 0.04, what would happen to Shamrock’s ROE?
d. Using the ROE in Part c, what is the expected sustainable growth rate? What if dividends were only $40,000?
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a b Growth Rate retention rate x return on equity 1 160000400000 x 345 ...View the full answer
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