What Is the Sustainable Growth Rate for a Firm with $250,000

question 114

Multiple Choice

What is the sustainable growth rate for a firm with $250,000 in net income, $20,000 in preferred stock dividends, $80,000 in common stock dividends, and an average equity balance of $1 million?

• A)8%
• B)10%
• C)15%
• D)17% sustainable growth rate = plowback ratio x ROE
• = 60% x ($250,000/$1 million)
• = 60% x 25%
• = 15%

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Definitions:

Underapplied Manufacturing Overhead

A scenario in which the overhead costs assigned to manufacturing are lower than the overhead expenses that were actually spent.

Allocation

Allocation involves distributing or assigning costs, resources, or revenues among various accounts, departments, or products based on specific criteria or formulas.

Journal Entry

A record in accounting that represents the recording of a financial transaction, consisting of debits and credits that must balance.

Manufacturing Overhead Costs

Indirect costs related to manufacturing, including costs associated with operating the factory outside of direct materials and labor.