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Question Two (3 Marks) Sustainable Growth. A n unlevered firm perceives its optimal dividend policy to be a 40 percent payout ratio. Asset turnover is

Question Two (3 Marks) Sustainable Growth.

A n unlevered firm perceives its optimal dividend policy to be a 40 percent payout ratio. Asset

turnover is sales/assets = 80%, the profit margin is 10 percent, and the firm has a target growth

rate of 5 percent.

a. Is the firms target growth rate consistent with its other goals?

b. If not, by how much does it need to increase asset turnover to achieve its goals?

c. How much would it need to increase the profit margin instead?

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