A firm has decided that its optimal capital structure is 100% equity financed. I

Question

A firm has decided that its optimal capital structure is 100% equity financed. It perceives its optimal dividend policy to be a 40% payout ratio. Asset turnover is sales/assets = .8, the profit margin is 10%, and the firm has a target growth rate of 5%.

Calculate the sustainable growth rate. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

If not, what should the asset turnover be to achieve its goals? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Instead, what would the profit margin need to be to achieve its goals? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

A firm has decided that its optimal capital structure is 100% equity financed. It perceives its optimal dividend policy to be a 40% payout ratio. Asset turnover is sales/assets = .8, the profit margin is 10%, and the firm has a target growth rate of 5%.

Explanation / Answer

a-1.

Calculate the sustainable growth rate. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

  Sustainable growth rate

%  

a-2.

Is the firm%u2019s target growth rate consistent with its other goals?

b.

If not, what should the asset turnover be to achieve its goals? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

  Asset turnover

c.

Instead, what would the profit margin need to be to achieve its goals? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

  Profit margin

%

a-1.

Calculate the sustainable growth rate. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

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