Growth Rates based on the result in Problem 31, show that the internal and sustainable growth rates

Question:

Growth Rates based on the result in Problem 31, show that the internal and sustainable growth rates are as given in the chapter.

S = Previous year’s sales
A = Total assets
D = Total debt
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio

Show that EFN can be written as follows:
EFN = - PM(S)b + (A - PM(S)b) × g

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Fundamentals of Corporate Finance

ISBN: 978-0077861629

8th Edition

Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan

See More Books

Question Posted: Apr 26, 2011 06:34 AM

See More Questions

Based on the result in Problem 30, show that the internal and sustainable growth rates are as given in the chapter. Hint: For the internal growth rate, set EFN equal to zero and solve for g .
Based on the result of Exercise 8.24, show that if X is a random variable having a chi square distribution with v degrees of freedom and v is large, the distribution of X v / 2v can be approximated...
Based on the result of Problem 13.8, plot the vertical field patterns of monopole antennas of lengths = 3/2, , 5/8. Note that a 5/8 monopole is often used in practice.
The system shown consists of 3 cables. For example; cable C12 joins points 1 and 2. The coordinates of point 1 are (6.4, 0, 0) m, those of point 2 are (0, 9.5, -6.1) m, and those of point 3 are (0,...
Suppose partial melting of the polar ice caps increases the moment of inertia of the Earth from 0.331 M E R E 2 to 0.332 M E R E 2 . (a) Would the length of a day (the time required for the Earth to...
Mark is the sole shareholder of Tex Corporation. Mark first formed Tex as a C corporation. However, in an attempt to avoid having Texs income double taxed, Mark elected S corporation status for Tex...
Daniel Peavy owns and operates an architectural firm called Peavy Design. Table P2-A-2 summarizes the financial position of his business on April 30, 2015. During May 2015, the following events...
Agee Corp. acquired a 25% interest in Trent Co. on January 1, 2010, for $500,000. At that time, Trent had 1,000,000 shares of its $1 par common stock issued and outstanding. During 2010, Trent paid...
Calculate bond price and Duration for a 3-vear bond paying a coupon 10%. Bond yield=15%. face value is 1000. coupon paid ever vear
Simtek projects year-end EBIT of $800M which is expected to grow at 5% annually, and capital expenditures will equal depreciation. Simtek has $4,590M of 6% perpetual debt trading at face value and no...
EFN Define the following: S = Previous years sales A = Total assets D = Total debt E = Total equity g = Projected growth in sales PM = Profit margin b =Retention (plowback) ratio Show that EFN can be...
Sustainable Growth Rate In the chapter, we discussed the two versions of the sustainable growth rate formula. Derive the formula ROE X b from the formula given in the chapter, where ROE is based on...
Naya purchased a new computer (5-year property) on June 1, 2022, for $4,000. Naya could use the computer 100% of the time in her business, or she could allow her family to use the computer as well....
My first run at a dissertation was on Dr. Martin Luther King, Jr. When I was very young he walked through my hometown of Albany, Georgia. My father accompanied him, more to protect him than anything,...
Question 2 are charged, and the charge on sphere Y is The X and Y dots shown in the figure are two identical spheres, X and Y, that are fixed in place with their centers in the plane of the page....
how do i get the residuel income please help in just need the cell formula in excel 2 Genmure Corporation is trying to analyze the results of three efficiency initiatives that were taken on the...
Harlow Appliance has just developed a new air fryer it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the below information: a. New...
Based on the business that you created a global strategy for in the week 4 discussion, determine a low-cost & differentiation strategy in an effort to remain competitive in the global market. Include...
List energy conservation opportunities in the agriculture sector.
Determine whether the lines are parallel, perpendicular, or neither. 2x + 3y = -12, 2y - 3x = 8
Based on what youve learned in this chapter, would you classify the chemistry of polymers as organic or inorganic?Why?
Define each of the following terms: a. Greenmail. b. White knight. c. Golden parachute. d. Crown jewels. e. Shark repellent. f. Corporate raider. g. Poison pill. h. Tender offer. i. Leveraged buyout...
In 2014, activist investor Nelson Pelz was pressuring PepsiCo to split up the company. Pelz felt that PepsiCo should split up the soft drink division, which includes Pepsi, Mountain Dew, and...
Pearl, Inc., has offered $357 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $319 million as an independent operation. If the merger...
why would an auditor want to complete dual-purpose tests? what procedure can be put into place to help prevent fraud? List 4 procedures.
Based on the following information, calculate sustainable growth rate for Groot, Inc.: Profit margin= 7.1% Total asset turnover = 1.90 Total debt ratio = .45 Payout ratio = 20% What is the ROA here?
Consider the following: a call option on a stock has strike price $100, premium of $5 and the current price of the underlying stock is $100. If you buy the call option today, what is your holding...

Growth Rates based on the result in Problem 31, show that the internal and sustainable growth rates

Question:

Step by Step Answer:

We start with the EFN equation we derived in Problem 32 and set it equal to zero EFN 0 PMS...View the full answer

Fundamentals of Corporate Finance

Students also viewed these Corporate Finance questions