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A firm has Net Income = $20 million from Sales = $150 million. The firm’s Debt...

A firm has Net Income = $20 million from Sales = $150 million. The firm’s Debt = $100 million, and the Book Equity = $100 million.

a. What are the firm’s PROFIT MARGIN, ASSET TURNOVER, and ASSET/EQUITY MULTIPLE.

b. If the firm wants to maintain its current Asset/Equity ratio, along with a payout ratio of 30% of Net Income, what is the firm’s sustainable growth rate?

c. The firm is committed to keeping its Debt/Equity ratio constant in the future. If the firm’s actual growth rate in sales and assets is expected to be 8% per year over the next 5 years, should the firm’s shareholders expect to see an increase or decrease in the firm’s payout ratio? Explain.

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