Based on the results in Problem 27, show that the internal and sustainable growth rates can be

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Based on the results in Problem 27, show that the internal and sustainable growth rates can be calculated as shown in Equations 3.25 and 3.26.

Problem 27

EFN We define the following variables as: S Previous year's sales A = Total assets E = Total equity g= Projected growth in sales Profit margin PM b =

Equation 3.25

Internal growth rate ROA X b 1 - ROA x b

Equation 3.26

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Corporate Finance

ISBN: 9781265533199

13th International Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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Question Posted: Nov 29, 2023 12:19 AM

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Based on the results in Problem 27, show that the internal and sustainable growth rates can be

Question:

S Previous year's sales A = Total assets E = Total equity g= Projected growth in sales Profit margin PM b = Retention (plowback) ratio Assuming that all debt is constant, show that EFN can be written as: EFN=PM(S)b + [A PM(S)b] x g

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Corporate Finance

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