Fundamentals of Corporate Finance, 11th Edition (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9781259298707
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 4, Problem 18QP
Growth and Profit Margin [LO3] Dante Co. wishes to maintain a growth rate of 12 percent per year, a debt–equity ratio of .85, and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at .95. What profit margin must the firm achieve?
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QUESTION 39
Getrag expects its sales to increase 20% next year from its current level of $4.7 million. Getrag has current assets of $660,000, net fixed assets of $1.5 million, and current liabilities of $462,000. All assets are expected to grow proportionately with sales. If Getrag has a net profit margin of 10%, what additional financing will be needed to support the increase in sales? Getrag does not pay dividends.
a.
$339,600
b.
No financing needed, surplus of $224,400
c.
No financing needed, surplus of $524,400
d.
$283,200
14. Constant-Growth Model. Arts and Crafts Inc. will pay a dividend of $5 per share in 1 year. It sells at $50 a share, and firms in the same industry provide an expected rate of return of 14%. What must be the expected growth rate of the company’s dividends? (LO7-2)
16. EXCEL] Sustainable growth rate: If Newell Corp. has a ROE of 13.7 percent and a dividend payout ratio of 32 percent, what is its sustainable growth rate?
Chapter 4 Solutions
Fundamentals of Corporate Finance, 11th Edition (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4.1 - What are the two dimensions of the financial...Ch. 4.1 - Prob. 4.1BCQCh. 4.2 - Prob. 4.2ACQCh. 4.2 - Prob. 4.2BCQCh. 4.3 - Prob. 4.3ACQCh. 4.3 - Prob. 4.3BCQCh. 4.4 - How is a firms sustainable growth related to its...Ch. 4.4 - What are the determinants of growth?Ch. 4.5 - What are some important elements that are often...Ch. 4.5 - Why do we say planning is an iterative process?
Ch. 4 - Prob. 4.1CTFCh. 4 - Prob. 4.2CTFCh. 4 - A firm has current sales of 272,600 with total...Ch. 4 - Prob. 4.4CTFCh. 4 - What is generally considered when compiling a...Ch. 4 - Sales Forecast [LO1] Why do you think most...Ch. 4 - Sustainable Growth [LO3] In the chapter, we used...Ch. 4 - External Financing Needed [LO2] Testaburger, Inc.,...Ch. 4 - EFN and Growth Rates [LO2, 3] Broslofski Co....Ch. 4 - Prob. 5CRCTCh. 4 - Prob. 6CRCTCh. 4 - Prob. 7CRCTCh. 4 - Prob. 8CRCTCh. 4 - Cash Flow [LO4] Which was the biggest culprit...Ch. 4 - Prob. 10CRCTCh. 4 - Pro Forma Statements [LO1] Consider the following...Ch. 4 - Pro Forma Statements and EFN [LO1, 2] In the...Ch. 4 - Prob. 3QPCh. 4 - EFN [LO2] The most recent financial statements for...Ch. 4 - EFN [LO2] The most recent financial statements for...Ch. 4 - Calculating Internal Growth [LO3] The most recent...Ch. 4 - Calculating Sustainable Growth [LO3] For the...Ch. 4 - Sales and Growth [LO2] The most recent financial...Ch. 4 - Calculating Retained Earnings from Pro Forma...Ch. 4 - Prob. 10QPCh. 4 - EFN and Sales [LO2] From the previous two...Ch. 4 - Internal Growth [LO3] If Stone Sour Co. has an ROA...Ch. 4 - Sustainable Growth [LO3] If Gold Corp. has an ROE...Ch. 4 - Sustainable Growth [L03] Based on the following...Ch. 4 - Sustainable Growth [LO3] Assuming the following...Ch. 4 - Full-Capacity Sales [LO1] Southern Mfg., Inc., is...Ch. 4 - Fixed Assets and Capacity Usage [LO1] For the...Ch. 4 - Growth and Profit Margin [LO3] Dante Co. wishes to...Ch. 4 - Growth and Assets [LO3] A firm wishes to maintain...Ch. 4 - Sustainable Growth [LO3] Based on the following...Ch. 4 - Sustainable Growth and Outside Financing [LO3]...Ch. 4 - Sustainable Growth Rate [LO3] Gilmore, Inc., had...Ch. 4 - Internal Growth Rates [LO3] Calculate the internal...Ch. 4 - Prob. 24QPCh. 4 - Prob. 25QPCh. 4 - Calculating EFN [LO2] In Problem 24, suppose the...Ch. 4 - EFN and Internal Growth [LO2, 3] Redo Problem 24...Ch. 4 - EFN and Sustainable Growth [LO2, 3] Redo Problem...Ch. 4 - Constraints on Growth [LO3] Volbeat, Inc., wishes...Ch. 4 - EFN [LO2] Define the following:...Ch. 4 - Growth Rates [LO3] Based on the result in Problem...Ch. 4 - Sustainable Growth Rate [LO3] In the chapter, we...Ch. 4 - Calculate the internal growth rate and sustainable...Ch. 4 - SS Air is planning for a growth rate of 12 percent...Ch. 4 - Prob. 3M
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- 5. A firm has an asset turnover ratio of 2.0. Its plowback ratio is 40%, and it is all equity-financed. What must its profit margin be if it wishes to finance 11% growth using only internally generated funds? if the profit margin of the firm is now found to be 6%, what is the maximum payout ratio that will allow it to grow at 8% without resorting to external financing?arrow_forwardWhich one is correct answer please confirm? QUESTION 39 Getrag expects its sales to increase 20% next year from its current level of $4.7 million. Getrag has current assets of $660,000, net fixed assets of $1.5 million, and current liabilities of $462,000. All assets are expected to grow proportionately with sales. If Getrag has a net profit margin of 10%, what additional financing will be needed to support the increase in sales? Getrag does not pay dividends. a. $339,600 b. No financing needed, surplus of $224,400 c. No financing needed, surplus of $524,400 d. $283,200arrow_forwardA company has $200 billion of sales and $10 billion of net income.Its total assets are $100 billion, financed half by debt and half bycommon equity. What is its profit margin? (5%) What is its ROA?(10%) What is its ROE? (20%) Would ROA increase if the firm usedless leverage? (Yes) Would ROE increase? (No)arrow_forward
- F2 You are analyzing a valuation done on a stable firm by a well-known analyst. Based on the expected free cash flow to firm next year of $30 million and an expected growth rate of 5%, the analyst has estimated a value of $750 million. You know that the firm has a cost of equity of 14% and an after-tax cost of debt of 6%. What is the weight of equity that the analyst has used? 37.5 % 42.5 % 50 % 57.5 % ANSWER IS 37.5%arrow_forward65.) Suppose Buyson Corporation’s projected free cash flow for next year is FCF1 = P150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company’s weighted average cost of capital is 11.5%, what is the firm’s total corporate value?Group of answer choices P3,150,000 P2,572,125P2,707,500 P2,850,000 P3,000,000arrow_forward4- What is the sustainable growth rate of a company if the return on equity is 16.5% and the dividend distribution rate is 40% in the last year ? A) %13,17 B) %10,99 C) %27,50 D) %32,93 E) %100arrow_forward
- D6) Suppose there are perfect capital markets with taxes. Investors expect a company to have $120 earnings before interest and taxes in one year. This company has a 25% tax rate, $100 market value of debt, and 20 shares outstanding. This company’s net working capital, depreciation expense, and capital expenditures are all expected to be zero in perpetuity. Investors expect this company to have the same earnings before interest and taxes, market value of debt, tax rate, and number of shares outstanding in perpetuity. The firm’s unlevered cost of equity is 8% and its cost of debt is 5%. Based on this information, what amount would you expect this company’s share price to be closest to? $5 $20 $40 $80 $100 $200 $400arrow_forwardQ. 6 High Flyer, Inc., wishes to maintain a growth rate of 14% per year and a debt-equity ratio of 0.5. The profit margin is 4.6%, and total asset turnover is constant at 1.16. What is the dividend payout ratio? (A negative answer should be indicated by a minus sign. DO NOT round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16) What is the maximum sustainable growth rate for this company? (DO NOT round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16)arrow_forwardA firm wants a sustainable growth rate of 3.73 percent while maintaining a dividend payout ratio of 39 percent and a profit margin of 8 percent. The firm has a capital intensity ratio of 2. What is the debt-equity ratio that is required to achieve the firm's desired rate of growth?arrow_forward
- A firm wants a sustainable growth rate of 2.73 percent while maintaining a dividend payout ratio of 39 percent and a profit margin of 6 percent. The firm has a capital intensity ratio of 2. What is the debt–equity ratio that is required to achieve the firm's desired rate of growth?arrow_forward16. [EXCEL] Sustainable growth rate: If Newell Corp. has a ROE of 13.7 percent and a dividend payout ratio of 32 percent, what is its sustainable growth rate? please use excel.arrow_forward12. Trend-line Inc. has been growing at a rate of 6% per year and is expected to continue to do so indefinitely. The next dividend is expected to be $5 per share. a. If the market expects a 10% rate of return on Trend-line, at what price must it be selling? b. If Trend-line's earnings per share will be $8, what part of Trend-line's value is due to assets in place, and what part to growth opportunities?arrow_forward
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