Question
Asked Sep 5, 2019
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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 = ____.__ %

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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 ...

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Financial Statement Analysis

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