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What is sustainable growth rate and firm pays no dividend

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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?

Reference no: EM131014345

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