M&A, Inc. maintains a constant debt-equity ratio of .4. Thefirm had net income f
ID: 2636445 • Letter: M
Question
M&A, Inc. maintains a constant debt-equity ratio of .4. Thefirm had net income for the year of $140,000 and paid $98,000 individends. The firm has total assets of $700,000. What is themaximum sustainable growth rate of the firm given this information? M&A, Inc. maintains a constant debt-equity ratio of .4. Thefirm had net income for the year of $140,000 and paid $98,000 individends. The firm has total assets of $700,000. What is themaximum sustainable growth rate of the firm given this information?Explanation / Answer
= sustainable growth rate of firm = ROE - (1- dividend payout ratio)
= (Net income/ shareholders equity) -( 1- Dividend / net income)
= (140000/420000) - ( 1-(98000/140000)
=.33-.033
=0.033
3.3%
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