Frasier Cabinets wants to maintain a growth rate of 5 percent without incurring any additional equity financing.The firm maintains a constant debt-equity ratio of .0.55,a total asset turnover ratio of 1.30,and a profit margin of 9.0 percent.What must the dividend payout ratio be?

Question

Quizplus · Accepted Answer

Return on equity = 0.09 × 1.30 × (1 + 0.55) = 0.18135Sustainable growth = [0.18135 × b]/[1 - (0.18135 × b)] = .05; b = 0.2626Payout ratio = 1 - 0.2626 = 73.74 percent

Frasier Cabinets Wants to Maintain a Growth Rate of 5