Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 3, Problem 5QAP
Summary Introduction
To compute: The number of sales that can be sustained with the same equity.
Introduction: The cash flow statement of any company represents the inflow and outflow of cash during the specified period. Along with the amount, it states the reason for the flow of cash.
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Loreto Inc. has the following financial ratios: asset turnover = 2.40; net profit margin (i.e., net income/sales) = 5%; payout ratio = 30%; equity/assets = 0.40.
a. What is Loreto's sustainable growth rate?
b. What is its internal growth rate?
Based on the following information, calculate the sustainable growth rate for Kaleb's
Heavy Equipment:
Profit margin
Capital intensity ratio
Debt-equity ratio
Net income
Dividends
8.1%
.51
.67
$ 29,000
$19,720
Ramble On Co. wishes to maintain a growth rate of 10.4 percent per year, a debt-equity
ratio of 1.0, and a dividend payout ratio of 15 percent. The ratio of total assets to sales is
constant at .82.
What profit margin must the firm achieve?|
Chapter 3 Solutions
Corporate Finance
Ch. 3 - Financial Ratio Analysis A financial ratio by...Ch. 3 - Industry-Specific Ratios So-called same-store...Ch. 3 - Sales Forecast Why do you think most long-term...Ch. 3 - Sustainable Growth In the chapter, we used...Ch. 3 - EFN and Growth Rate Broslofski Co. maintains a...Ch. 3 - Common-Size Financials One tool of financial...Ch. 3 - Asset Utilization and EFN One of the implicit...Ch. 3 - Comparing ROE and ROA Both ROA and ROE measure...Ch. 3 - Ratio Analysis Consider the ratio EBITD/Assets....Ch. 3 - Return on Investment A ratio that is becoming more...
Ch. 3 - Use the following information to answer the next...Ch. 3 - Prob. 12CQCh. 3 - Use the following information to answer the next...Ch. 3 - Use the following information to answer the next...Ch. 3 - Use the following information to answer the next...Ch. 3 - DuPont Identity If Muenster, Inc., has an equity...Ch. 3 - Equity Multiplier and Return on Equity Synovec...Ch. 3 - Prob. 3QAPCh. 3 - EFN The most recent financial statements for...Ch. 3 - Prob. 5QAPCh. 3 - Sustainable Growth If the Moran Corp. has an ROE...Ch. 3 - Prob. 7QAPCh. 3 - Prob. 8QAPCh. 3 - Prob. 9QAPCh. 3 - Prob. 10QAPCh. 3 - Prob. 11QAPCh. 3 - Prob. 12QAPCh. 3 - External Funds Needed The Optical Scam Company has...Ch. 3 - Days' Sales in Receivables A company has net...Ch. 3 - Prob. 15QAPCh. 3 - Prob. 16QAPCh. 3 - Prob. 17QAPCh. 3 - Prob. 19QAPCh. 3 - Prob. 20QAPCh. 3 - Calculating EFN The most recent financial...Ch. 3 - Prob. 22QAPCh. 3 - Prob. 23QAPCh. 3 - Prob. 26QAPCh. 3 - Prob. 27QAPCh. 3 - Prob. 28QAPCh. 3 - Prob. 29QAPCh. 3 - Prob. 30QAPCh. 3 - Calculate all of the ratios listed in the industry...Ch. 3 - Prob. 2MCCh. 3 - Prob. 3MCCh. 3 - Prob. 4MCCh. 3 - Prob. 5MC
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- Ramble On Co. wishes to maintain a growth rate of 6 percent a year, a debt-equity ratio of 0.49, and a dividend payout ratio of 52 percent. The ratio of total assets to sales is constant at 1.34. What profit margin must the firm achieve?arrow_forwardRamble On Co. wishes to maintain a growth rate of 10.4 percent per year, a debt-equity ratio of 1.0, and a dividend payout ratio of 15 percent. The ratio of total assets to sales is constant at .82. What profit margin must the firm achieve? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Profit margin % 8.26arrow_forwardLoreto Incorporated has the following financial ratios: asset turnover = 2.00; net profit margin (i.e., net income/sales) = 7%; payout ratio = 30%; equity/assets = 0.60. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. a. Sustainable growth rate b. Internal growth rate 14 % %arrow_forward
- RPJ Co. has net Income of $2,937, a profit margin of 6.3 percent, a retention ratio of 45 percent, total assets of $52,800, and total debt of $24,300. Assets, current liabilities, and costs are proportional to sales. The company maintains a constant dividend payout ratio and debt-equity ratio and is operating at full capacity. What is the maximum dollar Increase in sales that can be sustained next year assuming no new equity is issued? Multiple Choice O O O O O $2,151 $1,211 $2,804 $2,267 $1,667arrow_forwardLoreto Inc. has the following financial ratios: asset turnover = 1.60; net profit margin (i.e., net income/sales) = 6%; payout ratio = 30%; equity/assets = 0.50. a. What is Loreto's sustainable growth rate? b. What is its internal growth rate? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) A. Sustainable growth rate _______% B. Internal growth rate ______%arrow_forwardOnTheMove Inc. has profit margin of 9%, total asset turnover of 1.5, equity multiplier of 2 and a payout ratio of 35%. What is the firm's sustainable growth rate? a) 9.00% Ob) 9.45% c) 27.00% d) 21.29% e) 10.44%arrow_forward
- Gamgee Company wishes to maintain a growth rate of 11 percent per year, a debt-equity ratio of .75, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is constant at .65. What profit margin must the firm achieve?arrow_forwardPlease see below Company W's current financial ratios: Dividend payout ratio = 66% Internal growth rate 11% The ratio of total assets to sales = 1% The profit margin 8.6% If the management of Company W wants to maintain the above ratios at their current levels, what would be the debt-equity ratio? Multiple Choice 6.75 2.39 5.75 4.75 O 3.75arrow_forwardConsider a retail firm with a net profit margin of 3.36%, a total asset turnover of 1.88, total assets of $45.5 million, and a book value of equity of $17.6 million. a. What is the firm's current ROE? b. If the firm increased its net profit margin to 4.27%, what would be its ROE? c. If, in addition, the firm increased its revenues by 18% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?arrow_forward
- Gamgee Company wishes to maintain a growth rate of 11.6 percent per year, a debt- equity ratio of 1.6, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is constant at .88. What profit margin must the firm achieve? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Profit margin 26.17 %arrow_forwardWhich of the following statements is TRUE? When EBIT and total assets both increase by 25%, the basic earnings power will also increase O a. An increase in the quick ratio over time means that the company's liquidity position is improving. O b. approximately by 25%. A lower than the industry's average inventory turnover ratio means that the company turns over or sells O C. and replaces its inventory more times per year. A higher than industry average P/E ratio indicates the company's stock must be overvalued. d.arrow_forwardConsider a retail firm with a net profit margin of 3.94%, a total asset turnover of 1.84, total assets of $44.9 million, and a book value of equity of $18.3 million. a. What is the firm's current ROE? b. If the firm increased its net profit margin to 4.83%, what would be its ROE? c. If, in addition, the firm increased its revenues by 23% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE? **round to one decimal place**arrow_forward
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