Rowan Company has a net profit margin of 8.3 percent, debt ratio of 41 percent,
ID: 2748582 • Letter: R
Question
Rowan Company has a net profit margin of 8.3 percent, debt ratio of 41 percent, total assets of $4,332,200, sales of $7,182,600, and a dividend payout ratio of 57 percent. The firm’s management desires a sustainable growth rate (SGR) of 11 percent but does not wish to change the company’s level of debt or its payout ratio. What will the firm’s new net profit margin have to be in order to achieve the desired growth rate?
Net profit margin _______ % (Round intermediate calculation to 2 decimal places, e.g. 5.25 and final answer to 1 decimal place, e.g. 17.5%.)
Explanation / Answer
Net Profit margin = 7182600 * 8.3%
= $596156
Growth rate = 11%
Sales = $7182600
Sales after growth = 7182600*1.11
= $7972686
Net profit margin = 7182600* 8.3%
= $596156
New net profit margin % = 596156 / 7972686 * 100
= 7.48%
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