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A firm wishes to maintain an internal growth rate of 9.5 percentand a dividend payout...

A firm wishes to maintain an internal growth rate of 9.5 percent and a dividend payout ratio of 42 percent. The current profit margin is 7.5 percent, and the firm uses no external financing sources. What must total asset turnover be? (round 4 decimals)

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Expert Solution

Growth rate = ROE * Retention Ratio

Retention ratio = 1 - Div payout Ratio

= 1 - 0.42

= 58%

ROE = Growth Rate / Retention ratio

= 9.5% / 58%

= 16.38%

Asset Turnover = Sales / Assets

ROE = Net Income / Assets ---- As No external financing is there.

Profit Margin = Netincome / Sales

Asset Turnover = [ Sales / Net Income ] * [ Net Income / Assets ]

= [ ( 1 / 7.5% ) * 16.38% ]

= 2.184 times

jeff jeffy answered 2 years ago
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