Question

1)Stop and Shop Supermarkets has a 4.5% profit margin and a 25% dividend payout ratio. The total asset turnover is 1.5 and its debt-equity ratio is 0.6. What is its sustainable rate of growth?

2)Trader Joe’s has a 9% percent return on assets and a 75% percent retention ratio. What is its internal growth rate?

Answer #1

1.Debt-equity ratio=Debt/Equity

Hence debt=0.6equity

Total assets=debt+equity

1.6equity

Equity multiplier=Total assets/equity

1.6equity/equity

=1.6

ROE=(Profit margin*Total asset turnover*Equity multiplier)

=(0.045*1.5*1.6)

=0.108

Retention ratio=1-payout ratio

=(1-0.25)=0.75

Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]

(0.108*0.75)/[1- (0.108*0.75)]

=**8.81%(Approx)**

**2.**

Internal growth rate=(ROA*Retention ratio)/[1-(ROA*Retention ratio)]

=(0.09*0.75)/[1-(0.09*0.75)]

=**7.24%(Approx).**

The Green Giant has a 6 percent profit margin and a 65 percent
dividend payout ratio. The total asset turnover is 1.5 times and
the equity multiplier is 1.6 times. What is the sustainable rate of
growth?
Multiple Choice
14.40%
2.40%
5.31%
8.50%
26.00%

16- A company has a gross profit margin of 50%, net profit
margin of 10%, dividend payout ratio of 40%, asset turnover of 0.8,
financial leverage of 2.5. What is the company’s sustainable growth
rate?

A firm wants a sustainable growth rate of 2.83 percent while
mainaining a dividend payout ratio of 21 percent and a profit
margin of 5 percent. the firm has a capital intensity ratio of 2.
what is the debt equity ratio that is required to achieve the firms
desired rate of growth?

A firm wants a sustainable growth rate of 3.73 percent while
maintaining a dividend payout ratio of 39 percent and a profit
margin of 8 percent. The firm has a capital intensity ratio of 2.
What is the debt–equity ratio that is required to achieve the
firm's desired rate of growth?

Loreto Inc. has the following financial ratios: asset turnover =
2.60; net profit margin (i.e., net income/sales) = 4%; payout ratio
= 25%; equity/assets = 0.30.
a. What is Loreto's sustainable growth
rate?
b. What is its internal growth rate?

Loreto Inc. has the following financial ratios: asset turnover =
1.60; net profit margin (i.e., net income/sales) = 6%; payout ratio
= 25%; equity/assets = 0.80.
a. What is Loreto's sustainable growth
rate?
b. What is its internal growth rate?

NewCorp wants a sustainable growth rate of 2.69% while
maintaining a 40.00% dividend payout ratio and a profit margin of 5
percent. The company has a capital intensity ratio of 1.5. What
equity multiplier (EM) is required to achieve the company's desired
rate of growth?
A.
1.31
B.
1.91
C.
1.24
D.
1.95

you are given the following information for Hendrix Guitars,
Inc. Profit margin 6.5% total Asset turnover 1.5 Total debt ratio
.46 Payout ratio 30% calculate the sustainable growth rate.

A firm wants a sustainable growth rate of 2.55% while
maintaining a 35.00% dividend payout ratio and a profit margin of
4.00%. The firm has a capital intensity ratio of 2. What is the
debt-equity ratio that is required to achieve the firm's desired
ratio of growth?
A) 0.09
B) 0.23
C) 0.96
D) 0.91

A firm wishes to maintain an internal growth rate of 9.6 percent
and a dividend payout ratio of 43 percent. The current profit
margin is 7.7 percent, and the firm uses no external financing
sources.
What must total asset turnover be?

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