Suppose this company decides to maintain a constant debt-equity ratio, what growth rate can it maintain, assuming
Question:
Suppose this company decides to maintain a constant debt-equity ratio, what growth rate can it maintain, assuming no additional external financing is available? Tip: think about sustainable growth and define it ) | Explain |
5. Suppose the company wants to grow without leverage, that is, without debt. What will be its growth rate (Think about the internal growth rate and define it ). | |
6. Assume that the business is currently operating at maximum capacity. All current costs, assets, and liabilities vary directly with sales. The tax rate and dividend payout rate will remain constant. How much additional debt is required if no new capital is raised and sales are projected to increase by 5 percent? | |
7. Suppose now that the company is currently operating at 84 percent of its capacity. All costs and net working capital vary directly with sales. The tax rate, profit margin, and dividend payout rate will remain constant. How much additional debt is required if there are no new capital is raised and sales are projected to increase by 12 percent? |
8. What is meant by capital intensity? Give an example to fully describe
Statement of income | |
For the year 2019 | |
Sales | $28,400 |
cost of goods sold | 21,200 |
Depreciation | 2,700 |
Earnings before interest and taxes | $ 4,500 |
interested payment | 850 |
taxable income | $ 3,650 |
Taxes | 1,400 |
Net Income | $ 2,250 |
Dividends $900 | |
Balance sheet | |
end of year 2019 | |
Money | $ 550 |
accounts receivable | 2,450 |
Inventory | 4,700 |
Total current assets | $ 7,700 |
net fixed assets | 16,900 |
total assets | $24,600 |
Accounts payable | $ 2,700 |
long term debt | 9,800 |
Common Stock ($1 par value) | 8,000 |
Retained earnings | 4,100 |
Full Responsibility & Equity | $24,600 |
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th Edition
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan