High Flyer, Inc., wishes to maintain a growth rate of 14.75 percent per year and

Question

High Flyer, Inc., wishes to maintain a growth rate of 14.75 percent per year and a debt-equity ratio of .65. The profit margin is 4.3 percent, and total asset turnover is constant at 1.13.

What is the dividend payout ratio? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

High Flyer, Inc., wishes to maintain a growth rate of 14.75 percent per year and a debt-equity ratio of .65. The profit margin is 4.3 percent, and total asset turnover is constant at 1.13.

What is the dividend payout ratio? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

High Flyer, Inc., wishes to maintain a growth rate of 14.75 percent per year and a debt-equity ratio of .65. The profit margin is 4.3 percent, and total asset turnover is constant at 1.13.

Requirement 1:

What is the dividend payout ratio? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Step1

Return on Equity = profit margin*total asset turnover*(1+debt-equity ratio)

Return on Equity = 4.3%*1.13*(1+0.65)

Return on Equity = 8.01735%

Step2

Growth Rate = Return on Equity*Retention Ratio

Retention Ratio = Growth Rate/Return on Equity

Retention Ratio = 14.75/8.01735

Retention Ratio = 1.83976

Step3

Dividend payout ratio = 1- Retention Ratio

Dividend payout ratio = 1- 1.8398

Dividend payout ratio = - 0. 8398 or - 83.98%

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