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Stop and Go has a 5 percent profit margin and a 41 percent dividend .pdf

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Stop and Go has a 5 percent profit margin and a 41 percent dividend payout ratio. The total asset turnover is 1.60 and the debt-equity ratio is .55. What is the sustainable rate of growth (under constant debt/equity)?6.82 Percent Solution Retention ratio = 1 -dividend payout ratio = 1- .41 = .59 weight of equity = 1 / (1+.55) = 1/1.55 = .6452 equity multiplier =asset /equity = 1/ .6452 = 1.55 Return on equity (ROE)= profit margin *asset turnover * equity multiplier = .05 * 1.6 * 1.55 = .124 or 12.4% Growth =ROE *Retention ratio = 12.4 * .59 = .0731 or 7.32% correct option is \"E\" - 7.89% [approx to 7.32%].

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Stop and Go has a 5 percent profit margin and a 41 percent dividend payout ratio. The total asset turnover is 1.60 and the debt-equity ratio is .55. What is the sustainable rate of growth (under constant debt/equity)?6.82 Percent Solution Retention ratio = 1 -dividend payout ratio = 1- .41 = .59 weight of equity = 1 / (1+.55) = 1/1.55 = .6452 equity multiplier =asset /equity = 1/ .6452 = 1.55 Return on equity (ROE)= profit margin *asset turnover * equity multiplier = .05 * 1.6 * 1.55 = .124 or 12.4% Growth =ROE *Retention ratio = 12.4 * .59 = .0731 or 7.32% correct option is "E" - 7.89% [approx to 7.32%]

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Stop and Go has a 5 percent profit margin and a 41 percent dividend .pdf

  • 1. Stop and Go has a 5 percent profit margin and a 41 percent dividend payout ratio. The total asset turnover is 1.60 and the debt-equity ratio is .55. What is the sustainable rate of growth (under constant debt/equity)?6.82 Percent Solution Retention ratio = 1 -dividend payout ratio = 1- .41 = .59 weight of equity = 1 / (1+.55) = 1/1.55 = .6452 equity multiplier =asset /equity = 1/ .6452 = 1.55 Return on equity (ROE)= profit margin *asset turnover * equity multiplier = .05 * 1.6 * 1.55 = .124 or 12.4% Growth =ROE *Retention ratio = 12.4 * .59 = .0731 or 7.32% correct option is "E" - 7.89% [approx to 7.32%]