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Could you please explain the solution and the formula behind it? Thank you! 10) A firm has a payout ratio of 40% and sustainable growth

image text in transcribedCould you please explain the solution and the formula behind it? Thank you!

10) A firm has a payout ratio of 40% and sustainable growth rate of 8.5%. The capital intensity ratio is 1.1 and the debt-equity ratio is 0.50. What is the profit margin? Solution 0.085 = [0.60 x ROE] /[1 - (0.60 ROE)] ROE = 0.13057 0.13057 = PM (1 x 1.1) x (1+0.50) PM = 9.6%

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