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Assume that an average firm in the office supply business has a 6% profit margin, a 40% total liabilities / assets ratio, a total assets turnover of 2 times, and a dividend payout ratio of 40% Is it true that if such a firm is to have any sales growth (g > 0), it will be forced to borrow or to sell common stock (that is, it will need some nonspontaneous external capital even if g is very small)? Explain.

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 17, Problem 2Q
Textbook Problem

Assume that an average firm in the office supply business has a 6% profit margin, a 40% total liabilities / assets ratio, a total assets turnover of 2 times, and a dividend payout ratio of 40% Is it true that if such a firm is to have any sales growth (g > 0), it will be forced to borrow or to sell common stock (that is, it will need some nonspontaneous external capital even if g is very small)? Explain.

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