Question
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
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%. a. What is the sustainable growth rate? b. 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%)? c. 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%)? d. 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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