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?