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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.

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