ACME Inc. has the following ratios: A0*/ SO 1.3; L0*/S0 = 0.35; profit margin = 0.12; and the dividend payout ratio = 37, or 37%. Sales last year were $85 million. Assuming that these ratios will remain constant, use the AFN equation to determine the firm's self-supporting growth rate-in other words, the maximum growth rate ACME can achieve without having to employ non-spontaneous external funds. (Equation 9-1)

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Chapter1: Investments: Background And Issues
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ACME Inc. has the following ratios: A0*/S0 = 1.3; LO*/S0 = 0.35; profit margin = 0.12; and the dividend
payout ratio = 37, or 37%. Sales last year were $85 million. Assuming that these ratios will remain
constant, use the AFN equation to determine the firm's self-supporting growth rate-in other words, the
maximum growth rate ACME can achieve without having to employ non-spontaneous external funds.
(Equation 9-1)
Transcribed Image Text:ACME Inc. has the following ratios: A0*/S0 = 1.3; LO*/S0 = 0.35; profit margin = 0.12; and the dividend payout ratio = 37, or 37%. Sales last year were $85 million. Assuming that these ratios will remain constant, use the AFN equation to determine the firm's self-supporting growth rate-in other words, the maximum growth rate ACME can achieve without having to employ non-spontaneous external funds. (Equation 9-1)
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