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Primary Colors has a debt-equity ratio of .48, a return on assets of 13.6 percent, and a dividend
payout ratio of 30 percent. What is the firm's rate of growth?
Solution
ROE= Return on asset = (1+ D/E ratio)
= 13.60% x (1+0.48)
= 20.13%
Growth rate g = ROE x (1- payout ratio)
= 20.13% x (1- 0.30)
= 14.09%

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Primary Colors has a debt-equity ratio of .48, a return on assets of.pdf

  • 1. Primary Colors has a debt-equity ratio of .48, a return on assets of 13.6 percent, and a dividend payout ratio of 30 percent. What is the firm's rate of growth? Solution ROE= Return on asset = (1+ D/E ratio) = 13.60% x (1+0.48) = 20.13% Growth rate g = ROE x (1- payout ratio) = 20.13% x (1- 0.30) = 14.09%