For the prior year,Billy Bob's Dress Shop had a net profit margin of 5% based upon a sales level of $100,000.It's total assets are $1,000,000 while its total equity is $300,000.If Billy Bob pays out 50% of its net income in dividends,then what is the firm's sustainable growth rate going forward?

Question

Quizplus · Accepted Answer

g* = {m(1-d)(A/E)} / [(A/S)- {m(1-d)(A/E)}]
A/S = 10,A/E = 3.3333,m = .05,(1-d)= .5
g* = .0084 or .84%

For the Prior Year,Billy Bob's Dress Shop Had a Net