Question
A firm has decided that its optimal capital structure is 100% equity-financed. It perceives its optimal dividend policy to be a 45% payout ratio. Asset
A firm has decided that its optimal capital structure is 100% equity-financed. It perceives its optimal dividend policy to be a 45% payout ratio. Asset turnover is sales/assets = 0.4, the profit margin is 5%, and the firm has a target growth rate of 2%.
a-1. Calculate the sustainable growth rate.
a-2. Is the firms target growth rate consistent with its other goals?
b. If the firms target growth rate is not consistent with its other goals, what would asset turnover need to be to achieve its goals?
c. If the firms target growth rate is not consistent with its other goals, how high would the profit margin need to be to achieve its goals?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started