What is the expected sustainable growth rate for gama

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Reference no: EM132063148

The GAMA 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 GAMA’s ROE directly. Confirm this using the three components (DuPont Equation).

b. Using the ROE computed in Part a, what is the expected sustainable growth rate for GAMA?

c. Assuming the firm’s net profit margin (Net Income / Sales) went to 0.04, what would happen to GAMA’s Net Income and ROE?

d. Using the ROE in Part c, what is the expected sustainable growth rate? What if dividends were only $40,000?

Reference no: EM132063148

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