An unlevered firm perceives its optimal dividend policy to be a 40 percent payout ratio. Asset turnover is sales/assets = 80%, the profit margin is 10 percent, and the firm has a target growth rate of 5%. a. Is the firm's target growth rate consistent with it other goals? b. If not, how much does it need to increase asset turnover to achieve it goals? c. How much would it need to increase the profit margin instead?
An unlevered firm perceives its optimal dividend policy to be a 40 percent payout ratio. Asset turnover is sales/assets = 80%, the profit margin is 10 percent, and the firm has a target growth rate of 5%. a. Is the firm's target growth rate consistent with it other goals? b. If not, how much does it need to increase asset turnover to achieve it goals? c. How much would it need to increase the profit margin instead?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 11MC
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An unlevered firm perceives its optimal dividend policy to be a 40 percent payout ratio. Asset turnover is sales/assets = 80%, the profit margin is 10 percent, and the firm has a target growth rate of 5%.
a. Is the firm's target growth rate consistent with it other goals?
b. If not, how much does it need to increase asset turnover to achieve it goals?
c. How much would it need to increase the profit margin instead?
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