Chapter 4: Q.10B (page 397)
What is typically true of corporate dividend payout rates in the early stages of an industry life cycle? Why does this make sense?
Answer
Low dividend payout, as companies need to reinvest the money to grow
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Use the DuPont system and the following data to find return on equity.
6. Scott Kelly is reviewing MasterToy’s financial statements in order to estimate its sustain-
able growth rate. Using the information presented in Table 14.19 : (LO 14-3)
a. Identify and calculate the components of the DuPont formula.
b. Calculate the ROE for 2013 using the components of the DuPont formula.
c. Calculate the sustainable growth rate for 2013 from the firm’s ROE and plowback ratios. TABLE 14.19
Mastertoy, Inc.: Actual 2012 and estimated 2013 financial
statements for fiscal year ending December 31 (\( million,
except per-share data)
2012 2013
Income Statement
Revenue \)4,750 \(5,140
Cost of goods sold 2,400 2,540
Selling, general, and administrative 1,400 1,550
Depreciation 180 210
Goodwill amortization 10 10
Operating income \) 760 \( 830
Interest expense 20 25
Income before taxes \) 740 \( 805
Income taxes 265 295
Net income \) 475 \( 510
Earnings per share \) 1.79 \( 1.96
Average shares outstanding (millions) 265 260
Balance SheetCash \) 400 \( 400
Accounts receivable 680 700
Inventories 570 600
Net property, plant, and equipment 800 870
Intangibles 500 530
Total assets \)2,950 \(3,100
Current liabilities \) 550 \( 600
Long-term debt 300 300
Total liabilities \) 850 \( 900
Stockholders’ equity 2,100 2,200
Total liabilities and equity \)2,950 \(3,100
Book value per share \) 7.92 $ 8.46
Annual dividend per share 0.55 0.60
If you believe the U.S. dollar is about to depreciate more dramatically than do other investors, what will be your stance on investments in U.S. auto producers?
Why do you think the change in the index of labor cost per unit of output is a useful lagging indicator of the macro-economy? (See Table 12.2 .)
Unlike other investors, you believe the Fed is going to dramatically loosen monetary policy. What would be your recommendations about investments in the following industries?
a. Gold mining
b. Construction
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