Please answer question # 14

13. Drazi, Inc.s profit margin is 15%, total asset turnover is 0.8, equity multiplier is 1.25, and dividend payout ratio is 45%. The firm has no plan to raise funds externally, only counting on its own internal funding (i.e., retained earnings) to support growth. What maximum growth rate can Drazi achieve? Hint: According to the Key Equations on your textbook Appendix, ROA = Profit Margin x Total Asset Turnover.

1. 5.71%.
2. 7.07%.
3. 7.24%.
4. 8.99%. --- answer
5. 13.64%.

14. Abbai, Inc. has the same profit margin, same total asset turnover, same equity multiplier, and same dividend payout ratio as the aforementioned Drazi, Inc. (see Q13). To support its future growth, the firm plans to raise some debt from creditors while keeping its debt-equity ratio stable. What maximum growth rate can Abbai achieve?

1. 5.71%.
2. 7.07%.
3. 7.24%.
4. 8.99%.
5. 17.65%.