Question

Your firm has an ROE of 11 7%, a payout ratio of 26%. S629, 700 of stockholders' equity, and S430,000 of debt sustainable growth rate this year, how much additional debt will you need to issu…

Your firm has an ROE of 11 7%, a payout ratio of 26%. S629, 700 of stockholders' equity, and S430,000 of debt sustainable growth rate this year, how much additional debt will you need to issue? t you grow at your The Tax cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation practices during your career The sustainable growth rate is[)% (Round to three decimal place.) The ending total assets at the sustainable growth rate will be s (Round to the nearest dollar) Because the firm grew at its sustainable growth rate, its debt/equity ratio remains constant at 0.682865 and the debt-to-assets ratio will be 0.405775. Thus, the new debt in the capital structure will be 0.405775 x $1,151,449 $467,229. Since the firm started at $430,000, it will issue about $37,229 in additional debt ГМ Is the above statement true or false? . (Select from the drop-down menu.)

Solutions

Expert Solution

a. Sustainable Growth Rate = ROE * (1 – Payout Ratio)

Sustainable Growth Rate = 11.70% * (1 – 0.26)

Sustainable Growth Rate = 8.658%

b. Ending Total Assets = (Current Equity + Debt) * (1 +
Sustainable Growth Rate)

Ending Total Assets = (629700 + 430000) * (1 + 0.08658)

Ending Total Assets = $1151449

c.

Additional Debt = Ending Assets * DTA Ratio – Current Debt

Additional Debt = 1151449 * 0.405775 – 430000

Additional Debt = $37229

The Statement is True


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