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Anticipation of the return of standard depreciation

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Your firm has an ROE of 11.4%, a payout ratio of 22%, $649,800 of stockholders' equity, and $392,000 of debt. If you grow at your sustainable growth rate this year, how much additional debt will you need to issue?

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 nothing%. (Round to three decimal place.)

The ending total assets at the sustainable growth rate will be $____ (Round to the nearest dollar.)

Because the firm grew at its sustainable growth rate, its debt/equity ratio remains constant at 0.603263 and the debt-to-assets ratio will be 0.376272. Thus, the new debt in the capital structure will be 0.376272×$1,134,437=$426,857. Since the firm started at $392,000, it will issue about $34,857 in additional debt.

Is the above statement true or false?

Reference no: EM132920473

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