Gamgee Company wishes to maintain a growth rate of 11.6 percent per year, a debt-equity ratio of 1.6, and a dividend payout ratio of 25 percent. The ratio of total assets tosales is constant at .88. What profit margin must the firm achieve? (Do not roundintermediate calculations and enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)Profit margin26.17 %

Answered: Samgee Company wishes to maintain a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 13P

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Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?
Juroe Company provided the following income statement for last year: Juroes balance sheet as of December 31 last year showed total liabilities of 10,250,000, total equity of 6,150,000, and total assets of 16,400,000. Required: 1. Calculate the return on sales. (Note: Round the percent to two decimal places.) 2. CONCEPTUAL CONNECTION Briefly explain the meaning of the return on sales ratio, and comment on whether Juroes return on sales ratio appears appropriate.
Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of 2.0. Its sales are $100 million, and it has total assets of $50 million. What is its ROE?

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Samgee Company wishes to maintain a growth rate of 11. equity ratio of 1.6, and a dividend payout ratio of 25 percent ales is constant at .88. What profit margin must the fir ntermediate calculations and enter your answer as a per places, e.g., 32.16.) Profit margin 26.17 %