Calculate the growth rate given the following: – Net profit margin 4% – Fixed asset turnover&

Calculate the growth rate given the following:

– Net profit margin 4%

– Fixed asset turnover 3.5

– Total asset turnover 2.2

– Total assets/equity 2.4

– Dividend payout ratio 45%

A. 9.5%

B. 11.6%

C. 18.5%

Solutions

Expert Solution

Growth Rate, g = ROE * (1 - Dividend Payout Ratio)

Based on Du Pont relation,

ROE = Net profit margin * Total asset turnover * Total Assets/equity

ROE = 4% * 2.2 * 2.4 = 21.12%

g = 21.12% * (1 - 45%) = 11.6%

jeff jeffy answered 1 year ago

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