Subsidiary sustainable growth rate (10 marks)
Wally is pleased with your work. He asks you for help on one more project – and then you can take a well-deserved break! He gives you this information that he has collected on one of TimCo’s key subsidiaries, Oscar & Ollie Inc.: • Sales = $165,000 • Net Income = $14,800 • Dividends = $9,300 • Total Debt = $68,000 • Total Equity = $51,000 Wally wants to know –
(a) What is the sustainable growth rate? (4 marks)
(b) If Oscar & Ollie grows at this rate, how much new borrowing will take place in the coming year, assuming a constant debt–equity ratio? (2 marks)
(c) What growth rate could be supported with no outside financing at all? (2 marks)
