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problem: Suppose a firm has a net income in 20×9 of $20 and its end of year 20×8 total assets were USD 450. Further assume that the firm has a standing requirement to maintain a debt or equity ratio of 0.8, & that its manager is prohibited from further borrowing or stock issuance.

[A] Determine firm’s maximum sustainable growth rate?

[B] If the firm uses $12 of the USD 20 net income to repurchase some of its outstanding shares, now determine its maximum sustainable growth rate?

[C] If the firm takes action as described in part b and c, determine its maximum sustainable growth rate be?

[D] If the firm pays $6 of the $20 net income as a dividend, and plans to maintain this payout ratio into the future, now determine its maximum sustainable growth rate?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M916278

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