(TCO A, D) Gander Gloves has created a special synthetic that is used to line the inside of baseball gloves and remove the “sting” of catching balls. Several universities and three Major League Baseball teams have already ordered gloves with the special lining,
at $600 per glove. In 2013, the company has $8 million in revenue, and $800,000 in net income. Gander Gloves began the year with $1 million in book equity on January 1. Complete the following, and show all your calculations for each: a) Forecast the firm’s
2018 sales, assuming a 60% sales growth rate per year starting in 2014. b) Assuming Gander Gloves pays out no dividends in 2013, what is the firm’s maximum sustainable growth rate? c) Compare Gander Glove’s anticipated sales growth rate with the firm’s maximum
sustainable growth rate (which you just calculated in (b). Will the firm be able to support its growth through internally generated funds? If so, discuss the financial reasons why this is so using the textbook’s concept of maximum sustainable growth rate.
If you believe the firm will not be able to support its growth, explain why and discuss what action management must take. d) Part 1: If the firm pays out $300,000 in dividends, what is the firm’s retention rate? Part 2: Assuming the firm pays out $300,000
in 2013 dividends, what is Gander Glove’s sustainable growth rate? e) After paying $300,000 in 2013 dividends on December 31, what will be Gander Glove’s new book equity balance? f) Use your final answer for (e) to answer the following: if Gander Glove’s balance
sheet shows liabilities with a book value of $800,000, what is book value of the firm’s assets?