Question
Asked Oct 14, 2019
67 views

Assume the following ratios are constant:

 

       
  Total asset turnover   2.6  
  Profit margin   6.6 %
  Equity multiplier   1.5  
  Payout ratio   25 %
 

 

 

What is the sustainable growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 

 
check_circle

Expert Answer

Step 1

The maximum growth which a firm can achieve by using internal resources and fund is known as sustainable growth rate.

Step 2

The formula to calculate return on equity is given below:

help_outline

Image Transcriptionclose

Return on equity Profit margin x Total asset turnoverx Equity multiplier

fullscreen
Step 3

Substitute 6.6% for profit margin, 2.6 for total as...

help_outline

Image Transcriptionclose

Return on equity = 0.066 x 2.6 x 1.5 0.2574

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Other

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: The Argentina Fund has $450 million in assets and sells at a discount of 6.3 percent to NAV. If the ...

A: Net asset value per share can be computed with the help of a fraction, where numerator of the fracti...

question_answer

Q: The New Fund had average daily assets of $3.2 billion in the past year.  The fund sold $500 million ...

A: a.Given,Average Daily Assets = $3,200,000,000Fund Sold = $500,000,000a.Given,Average Daily Assets = ...

question_answer

Q: Another nice gentleman emails you to inform you that you have won an international lottery. Although...

A: We will make use the PV function of excel to solve this.

question_answer

Q: You have located the following information on Webb’s Heating & Air Conditioning: debt ratio is 6...

A: Debt ratio = 63%Hence, equity multiplier = 1 / (1 - Debt ratio) = 1 / (1 - 63%) = 2.7027

question_answer

Q: Finance Question

A: The general format for the accounting net income in this case, is as shown on the white board.

question_answer

Q: Assume that the fund is liquidated at the end of the fourth quarter, what are the arithmetic, time-w...

A: Calculation of Arithmetic, Geometric and Dollar-Weighted Return:The Arithmetic Return is 1500%, Geom...

question_answer

Q: Susan Jones has a job as a pharmacist earning $55,000 per year, and she is deciding whether to take ...

A: Meaning:Expected net present value is calculated as the sum of product of net present values under d...

question_answer

Q: Off-The-Books Investment Firm, LLC, has offered you an investment it says will return to you $20,000...

A: Calculate the annual rate of return as follows:MS-Excel --> Formulas --> Financials --> Rat...

question_answer

Q: Gillette's most recent annual dividend was $8 per share. The company expects the growth of its divid...

A: Part A& B:Calculation of Current Value of Stock and Dividend Growth Rate:Excel Spreadsheet: