Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

EBIT/Sales = 15%, Sales/Assets = 2.0, Assets/Equity = 2.0, the dividend payout ratio = 10%, the interest rate on debt = 10%, and the tax

  1. EBIT/Sales = 15%, Sales/Assets = 2.0, Assets/Equity = 2.0, the dividend payout ratio = 10%, the interest rate on debt = 10%, and the tax rate = 40%.
    1. What is the sustainable growth rate?
    2. How does the sustainable growth rate change in response to reducing any of the above ratios or percentages by onehalf (e.g., EBIT/Sales = 7.5%)?
    3. How does the sustainable growth rate change in response to increasing any of the above ratios or percentages by onehalf (e.g., EBIT/Sales = 22.5%)?
    4. Do some changes have greater impact on the sustainable growth rate than others? Are the effects linear or nonlinear? Explain your findings.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Commodity Trade And Finance

Authors: Michael Tamvakis

2nd Edition

041573245X, 978-0415732451

More Books

Students also viewed these Finance questions