Based on the results in Problem 27, show that the internal and sustainable growth rates can be

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Based on the results in Problem 27, show that the internal and sustainable growth rates can be calculated as shown in Equations 3.25 and 3.26.

Problem 27

EFN We define the following variables as:S Previous year's sales A = Total assets E = Total equity g= Projected growth in sales Profit margin PM b =

Equation 3.25

Internal growth rate ROA X b 1 - ROA x b

Equation 3.26Sustainable growth rate= ROE x b 1 - ROE x b

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Corporate Finance

ISBN: 9781265533199

13th International Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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