Dynamic Communication is a U.S. industrial company with several electronics divisions. The company has just released its 2010 annual report. Tables C and D present a summary of Dynamic€™s financial statements for the years 2009 and 2010. Selected data from the financial statements for the years 2006 to 2008 are presented in Table E.
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 2007 and 2010. Your calculations should use beginning-of-year balance sheet data.
b. Determine how the change in Dynamic€™s sustainable growth rate (2010 compared to 2007) was affected by changes in its retention ratio and its financial leverage. (Your calculations should use beginning-of-year balance sheetdata.)

Table E 2008 2007 2006 53,175 495 104 S 235 0.80 3,625 $1,750 $1,664 100 3,075 Total revenues Operating income (EBIT) Interest expense Net income Dividends per share Total assets 2 $3,000 433 101 S 208 0.80 3,414 $1,700 1,509 100 3 $ 200 $ 0.80 $3,230 $1,650 $1,380 100 Long-term debt Total shareholders' equity Number of shares outstanding (millions)