Reference no: EM131014345
Use the sustainable growth template in Figure 8.1 and the following data to answer the questions below:
Factor /Definition and Value
1. Asset Turnover Sales / Total Assets = 2.0
2. Financial Leverage Total Assets / Equity = 4.0
3. Return on Sales (ROS) Net Income / Sales = 7%
4. Dividend Retention (R) Fraction of Net Income Retained = 1/4
a. What is the sustainable growth rate, g*?
b. What level of initial equity investment is required if Year 2 sales are to reach $2,500?
c. What is the new g* if the firm pays no dividend?
d. If the firm would like to achieve a g* of 25% with no change in dividend policy, what level of financial leverage would be required?
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