Fixed Appliance Co. wishes to maintain a growth rate of 8 percent a year, a constant debt-equity ratio of 0.34, and a dividend payout ratio of 52 percent. The ratio of total assets to sales is constant at 1.3. What profit margin must the firm achieve?

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Quizplus · Accepted Answer

Retention ratio = 1 - 0.52 = 0.48Sustainable growth rate = 0.08 = (ROE F1F1F1S1F1F1F10 0.48)/[1 - (ROE F1F1F1S1F1F1F10 0.48)]; ROE = 0.1543Return on equity = 0.1543 = PM F1F1F1S1F1F1F10 (1/1.3) F1F1F1S1F1F1F10 (1 + 0.34); Profit margin = 14.97 percent