Problem: The Sally Corporation’s income statement is given below.
| Sally Corporation |
| Sales |
|
|
|
$ 250,000 |
| Cost of Goods Sold |
|
|
145,000 |
| Gross Profit |
|
|
105,000 |
| Fixed Charges (other than interest) |
|
25,000 |
| Income before interest and taxes |
|
80,000 |
| Interest |
|
|
|
20,000 |
| Income before taxes |
|
|
60,000 |
| Taxes (35%) |
|
|
21,000 |
| Income after taxes |
|
|
$ 39,000 |
Question 1: What is the Fixed-Charge-Coverage Ratio?
Question 2: If a firm has a total debt ratio of 1.5, what is its equity multiplier?
Question 3: Red, Inc has a Return on Equity of 14%, a dividend payout ratio of 20%, an equity multiplier of 1.4 and a profit margin of 1.2%. What is the sustainable growth rate?