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A firm’s profit margin is 16%, and its asset turnover ratio is 0.8. It has no debt, has net income of $40 per share, and pays dividends of $20 per share. What is the sustainable growth rate?
What is the Sustainable growth rate[removed] %
| INCOME STATEMENT, 2012 |
| Sales |
$ |
8,000 |
|
| Cost |
|
6,300 |
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| |
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| Net income |
$ |
1,700 |
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| BALANCE SHEET, YEAR-END |
| |
2011 |
2012 |
|
2011 |
2012 |
| Assets |
$ |
4,500 |
$ |
5,000 |
Debt |
$ |
853 |
$ |
1,000 |
| |
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|
|
Equity |
|
3,647 |
|
4,000 |
| |
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| Total |
$ |
4,500 |
$ |
5,000 |
Total |
$ |
4,500 |
$ |
5,000 |
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If the dividend payout ratio is fixed at 50%, calculate the required total external financing for growth rates in 2013 of 25%, 30%, and 35%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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External
Financing |
| 25% |
$ [removed] |
| 30% |
[removed] |
| 35% |
[removed] |
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Find the sustainable and internal growth rates for a firm with the following ratios: asset turnover = 1.50; profit margin = 6%; payout ratio = 40%; equity/assets = 0.50. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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| Sustainable growth rate |
[removed] % |
| Internal growth rate |
[removed] % |
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Plank’s Plants had net income of $5,000 on sales of $100,000 last year. The firm paid a dividend of $1,100. Total assets were $200,000, of which $100,000 was financed by debt.
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| a. |
What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
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| Sustainable growth rate |
[removed] % |
| b. |
If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.)
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| c. |
What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
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| Maximum growth rate |
[removed] %
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