Question
Last year, Marly Brown, Inc., reported an ROE of 20 percent. The firm debt-to-equity was 1.50 times, sales were $20 million, the capital intensity was
Last year, Marly Brown, Inc., reported an ROE of 20 percent. The firm debt-to-equity was 1.50 times, sales were $20 million, the capital intensity was 1.25 times, and dividends paid to common stock holders were $1,000,000. The firms has no preferred stock outstanding. This year, Marly Brown plans to decrease its debt-to-equity ratio to 1.20 times. The change will not affect sales, total assets, or dividends paid, however it will reduce the firms profit margin to 9.85 percent. Use the Dupont equation to determine how the change in Marly Browns debt ratio will affect its internal growth rate
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