Fundamentals of Corporate Finance (Special Edition for Rutgers Business School)
11th Edition
ISBN: 9781308509853
Author: Ross, Westerfield, Jordan
Publisher: McGraw Hill
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Chapter 4, Problem 22QP
Sustainable Growth Rate [LO3] Gilmore, Inc., had equity of $161,000 at the beginning of the year. At the end of the year, the company had total assets of $305,000. During the year, the company sold no new equity. Net income for the year was $29,000 and dividends were $6,200. What is the sustainable growth rate for the company? What is the sustainable growth rate if you use the formula
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INV3 P6b
You are interested in determining the intrinsic value of Hoffman Inc.
Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely.
Lastly, your estimate of the required return on the firm’s equity is 12%.
Hoffman’s recently published annual report shows the following financial relationships:
Assets = 1.4 x Equity
Current Assets = 1.7 x Current Liabilities
Sales = 1.5 x Assets
Net Income = 8% x Sales
Dividends = 30% x Net Income
Earnings per share (Basic) = $0.80 per share
Use the multi-period DDM to estimate the intrinsic value of the company’s stock now, at the beginning of year 1.
INV3 P6a
You are interested in determining the intrinsic value of Hoffman Inc.
Your analysis shows that the firm’s growth rate will drop from its current pace by 20% each of the next two years, and then you estimate that dividends will continue to grow at the year 2 rate, with the same dividend policy in place, indefinitely.
Lastly, your estimate of the required return on the firm’s equity is 12%.
Hoffman’s recently published annual report shows the following financial relationships:
Assets = 1.4 x Equity
Current Assets = 1.7 x Current Liabilities
Sales = 1.5 x Assets
Net Income = 8% x Sales
Dividends = 30% x Net Income
Earnings per share (Basic) = $0.80 per share
Determine the growth rate of the company for the prior and for each of the next two years.
H3.
A firm wishes to maintain an sustainable growth rate of 9 percent and a dividend payout ratio of 64 percent. The ratio of total assets to sales is constant at 0.9, and the profit margin is 10.1 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be?
Please show proper step by step calculation
Chapter 4 Solutions
Fundamentals of Corporate Finance (Special Edition for Rutgers Business School)
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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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Sustainable Growth Rate The Raindrop Company has an ROE of 12.1 percent and a payout ratio of 25 percent.a. What is the company’s sustainable growth rate?b. Can the company’s actual growth rate be different from its sustainable growth rate? Why or why not?c. How can the company increase its sustainable growth rate?arrow_forwardwhich one is correct please suggest? 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. $283,200arrow_forwardY9 Chapter 4 Problem 11 a. Use the information below from Tournament Sporting Goods's annual financial statements to calculate the actual and sustainable growth rate for each year from 2014 to 2017. b. Do you think Tournament Sporting Goods is having a problem financing its growth? Is the increase in dividends a good idea for the company? TOURNAMENT SPORTING GOODS FINANCIAL DATA ($ thousands) 2013 2014 2015 2016 2017 Sales 491.62 706.52 792.01 876.52 1,088.46 Net income 43.27 26.31 38.48 44.84 25.76 Total assets 477.06 648.42 664.26 697.16 982.63 Equity 346.32 426.01 465.85 432.91 553.27 Dividends 0.00 0.00 0.80 1.65 2.22arrow_forward
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