Question

High Flyer, Inc., wishes to maintain a growth rate of 15.75
percent per year and a debt–equity ratio of .85. The profit margin
is 4.9 percent, and total asset turnover is constant at 1.09.

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.)
**

Dividend payout ratio %

What is the maximum sustainable growth rate for this company?

Sustainable growth rate %

Answer #1

ROE =(Profit margin)*(Total asset turnover)*(Equitymultiplier)

=4.9%*(1.09)*(1+.85)

=9.88%

Sustainable growth rate= [(ROE)(b)] / [1 – (ROE)(b)

Sustainable growth rate =15.75%

b=retention ratio

Payout ratio =1-b

=15.75%=(9.88%*b)/[1 – (9.88%)(b)

b= 1.377218

**Dividend Payoutratio= 1 – 1.377218 =-37.71%**

dividend payout ratio is negative which is impossible growth rate is inconsistent with the other constraints

The lowest possible payout rate is zero, which correspondsto a retention ratio of one

The maximum sustainable growth rate for this company is

= [(ROE)(b)] / [1 – (ROE)(b)]

= [0.0988(1)] / [1 – 0.0988(1)]

Sustainable growth rate **=10.96%**

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e.g., 32.16.)
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You’ve collected the following information about Sully,
Inc.:
Profit margin
=
4.43
%
Total asset turnover
=
3.40
Total debt ratio
=
.26
Payout ratio
=
28
%
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not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
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%
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What must total asset turnover be?
(Enter your answer rounded to 4 decimal places. For
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