Asked Sep 5, 2019

You have located the following information on Webb’s Heating & Air Conditioning: debt ratio is 63 percent, capital intensity is 1.20 times, profit margin is 11.6 percent, and the dividend payout is 16.00 percent.

Calculate the sustainable growth rate for Webb. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Sustainable growth rate = ____.__ %


Expert Answer

Step 1

Debt ratio = 63%

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

Step 2

Asset turnover ratio = 1 / Capital intensity = 1 / 1.20 = 0.8333

Profit Margin = 11.6%

Retention Ratio = 1 - Dividend payout ratio = 1 - 16% = 84%

Step 3

ROE = Profit margin x Asset turnover ratio x Equity ...

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



Financial Statement Analysis

Related Finance Q&A

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

Q: our father paid $10,000 (CF at t = 0) for an investment that promises to pay $850 at the end of each...

A: We have to essentially find the disocunt rate at which this investment has NPV of zero. Thus, we nee...


Q: Upton Umbrellas has a cost of equity of 12.6 percent, the YTM on the company's bonds is 5.7 percent,...

A: Calculating the market value of debt and equity. We have,(a) Market value of debt = Book value of de...


Q: Decide whether the following statement makes sense​ (or is clearly​ true) or does not make sense​ (o...

A: The correct answer is “Statement A”.


Q: MV Corporation has debt with market value of $96 million, common equity with a book value of $104 mi...

A: We have : Market Value of debt  : $96 millionBook Value of Equity : $104 millionPreferred Stock : $2...


Q: Save Help Subr Exit Check my work Marsha Jones has bought a used Mercedes horse transporter for her ...

A: Calculation of NPV of the Investment:The renting is done for every other week which means there are ...


Q: Let C be the price of a call option to purchase a security whose present price is S.  Explain why C ...

A: Options are derivative contracts and the amount that we pay to buy an option is called premium.


Q: Use the 2016 FICA tax rates, shown below, to answer the following question. If a taxpayer is not sel...

A: The tax payer is not self employed. He will therefore be governed by the employee's tax rates.Income...


Q: Please calculate the Sharpe measure for the S&P 500 over the last ten years if the standard devi...

A: Sharpe Ratio or Sharpe measure of a security = Return in excess of risk free rate / Standard deviati...


Q: a. Use the appropriate formula to find the value of the annuity b. Find the interest. Periodic Depos...

A: When payments are equal and made at fixed intervals, the series is an annuity. If the annuity is mad...