Assume that an average firm in the office supply business has a 6 percent after-tax profit margin,

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Assume that an average firm in the office supply business has a 6 percent after-tax profit margin, a 40 percent debt/assets ratio, a total assets turnover of 2 times, and a dividend payout ratio of 40 percent. Is it true that if such a firm is to have any sales growth (g > 0), it will be forced either to borrow or to sell common stock (that is, it will need some nonspontaneous, external capital even if g is very small)?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Fundamentals of Financial Management

ISBN: 978-0324272055

10th edition

Authors: Eugene F. Brigham, Joel F. Houston

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