Growth Rates based on the result in Problem 31, show that the internal and sustainable growth rates

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Growth Rates based on the result in Problem 31, show that the internal and sustainable growth rates are as given in the chapter.

S = Previous year’s sales
A = Total assets
D = Total debt
E = Total equity
g = Projected growth in sales
PM = Profit margin
b = Retention (plowback) ratio

Show that EFN can be written as follows:
EFN = - PM(S)b + (A - PM(S)b) × g

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Fundamentals of Corporate Finance

ISBN: 978-0077861629

8th Edition

Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan

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Question Posted: Apr 26, 2011 06:34 AM

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Growth Rates based on the result in Problem 31, show that the internal and sustainable growth rates

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Step by Step Answer:

We start with the EFN equation we derived in Problem 32 and set it equal to zero EFN 0 PMS...View the full answer

Fundamentals of Corporate Finance

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