A firm wants a sustainable growth rate of 3.68percent while maintaining a dividend payout ratioof 38 percent and a profit margin of 7 percent. Thefirm has a capital intensity ratio of 2. What is thedebt-equity ratio that is required to achieve thefirm's desired rate

The formula to calculate the sustainable growth rate is:368.The given value of dividend payout…

Answered: A firm wants a sustainable growth rate…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following statements is most correct? Group of answer choices None of these. A firm facing a steep demand curve (that is, high flotation costs) for new equity would likely also face, at some point, a steeply upward sloping WACC curve. A breakpoint is based on the dollar value used of a specific type of capital, and occurs at the point where the cost of that capital type increases. Thus, if a firm has $100,000 in earnings, and stockholders want $50,000 of those earnings paid as dividends, then retained earnings will have two breakpoints. One purpose of calculating the WACC is to have a singular cost of capital measure that can be applied to evaluate all of the firm's projects, including those of greater than and lesser than average risks.
Phil's Carvings Inc wants to have a weighted average cost of capital of 9.8 percent. The firm has an after- tax cost of debt of 6.6 percent and a cost of equity of 13.2 percent. What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital?
A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 52 percent. The ratio of total assets to sales is constant at 1.1, and the profit margin is 9.6 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must it be?
You are analyzing the cost of capital for a firm that is financed with 65 percent equity and 35 percent debt.The cost of debt capital is 8 percent, while the cost of equity capital is 20 percent for the firm. What is the overall cost of capital for the firm? Select one: a. None of these b. 12.2% с. 15.8% d. 20.2%
Which of the following is the better option for an average firm? A. A debt ratio = 30% and a timed interest earned 15. B. A debt ratio = 80% and a timed interest earned = 8. C. A debt ratio 60% and a timed interest earned = 2. D. A debt ratio = 10% and a timed interest earned = 7. - =
In the world with perfect capital market and no taxes, Firm A is unlevered and has an equity beta equal to 2. Firm B is identical to Firm A except that it has a debt to equity ratio equal to one. Assuming B can borrow at 5% risk-free rate and that Firm’s cost of capital is 10%, What are the equity beta and the cost of equity of firm B? A. Firm B has Beta equal to 2, and a cost of equity equal to 0.1 B. Firm B has Beta equal to 4, and a cost of equity equal to 0.15 C. Firm B has Beta equal to 3, and a cost of equity equal to 0.125 D. Firm B has Beta equal to 1, and a cost of equity equal to 0.15
A firm had a debt ratio of 0.85. The pretax cost of debt is 8% and the reqiured return on asset is 15.5%. What is the cost of equity if we factorin the firms tax rate of 24%? A) 19.53 B) 18.92 C) 21.57 D) 20.35 E) 20.96
The Beta Corporation has an optimal debt ratio of 40 percent. Its cost of equity capital is 10 percent, and its before-tax borrowing rate is 7 percent. Given a marginal tax rate of 35 percent. Required: A. Calculate the weighted-average cost of capital. B. Calculate the cost of equity for an equivalent all-equity financed firm.
Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 7.6%, a debt cost of capital of 6.1%, a marginal corporate tax rate of 21%, and a debt-equity ratio of 2.8. Assume that Goodyear maintains a constant debt-equity ratio. a. What is Goodyear's WACC? b. What is Goodyear's unlevered cost of capital? c. Explain, intuitively, why Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC. a. What is Goodyear's WACC? The WACC is%. (Round to two decimal places.)
A firm has an asset turnover ratio of 5.0. Its plowback ratio is 50%, and it is all-equity-financed. If the profit margin of the firm is 3%, what is the maximum payout ratio that will allow it to grow at 5% without resorting to external financing? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Maximum payout ratio %
A firm has a debt-equity ratio of 0.5 and a cost of debt of 5 percent. The industry average cost of unlevered equity is 15 percent. What is the weighted average cost of capital for this firm? Ignore tax. O 0.12 O 0.13 0.14 O 0.15
This question is related to Chapter 18 of Berk & Demarzo "Capital Budgeting and Valuation with Leverage". How do the calculations of the firm value using the APV method differ between the following assumptions? The growth rate of the EBIT and the debt-equity ratio will be constant The growth rate of the EBIT and the interest coverage ratio will be constant. The firm selects the optimal interest coverage ratio and maintains this ratio constant forever (corporate taxes are the only imperfection) Are the values that result different or equal?

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A firm wants a sustainable growth rate of 3.68 percent while maintaining a dividend payout ratio of 38 percent and a profit margin of 7 percent. The firm has a capital intensity ratio of 2. What is the debt-equity ratio that is required to achieve the firm's desired rate