If a firm decided to speed up its collection from its customers by reducing the

Question

If a firm decided to speed up its collection from its customers by reducing the the inventory period and payable period the same, then: Sustainable growth is the rate at which the firm can grow A Company has a beta of 0.66. If the interest rate on Treasury bills is 5% and the e market portfolio is 15%, what is the expected rate of return for the Company? A stock is selling today for dollar 72 per share. At the end of the year, it sells for dollar 80 and g What is the rate of return for this stock? If in 2012, the market as a whole was up 12.5% market risk premium is 8.5%. whit is the Calculate the expected return of a stock w.th a beta 0 85. If the risk premium is 7% and the yielding 1%

Explanation / Answer

14.The sustainable growth rate is a measure of how much a firm can grow without borrowing more money. After the firm has passed this rate, it must borrow funds from another source to facilitate growth.In other words a sustainable growth rate (SGR) is the maximum growth rate that a company can sustain without having to increase financial leverage.

The models used to calculate sustainable growth assume that the business wants to: 1) maintain a target capital structure without issuing new equity; 2) maintain a target dividend payment ratio; and 3) increase sales as rapidly as market conditions allow. Since the asset to beginning of period equity ratio is constant and the firm's only source of new equity is retained earnings, sales and assets cannot grow any faster than the retained earnings plus the additional debt that the retained earnings can support. The sustainable growth rate is consistent with the observed evidence that most corporations are reluctant to issue new equity. If, however, the firm is willing to issue additional equity, there is in principle no financial constraint on its growth rate. Indeed, the sustainable growth rate formula is directly predicated on return on equity.

Thus option 'a' is correct for sustainable growth rate.

15.The below mention formula is used to calculate expected rate of return :

E(R) = RFR + Betastock (Rmarket

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