Assume that an average firm in the office supply business has a 6% profit margin, a 40%total liabilities/assets ratio, a total assets turnover of 2 times, and a dividend payout ratioof 40%. Is it true that if such a firm is to have any sales growth (g>0), it will be forced toborrow or to sell common stock (that is, it will need some nonspontaneous external capitaleven if g is very small)? Explain.
Assume that an average firm in the office supply business has a 6% profit margin, a 40%total liabilities/assets ratio, a total assets turnover of 2 times, and a dividend payout ratioof 40%. Is it true that if such a firm is to have any sales growth (g>0), it will be forced toborrow or to sell common stock (that is, it will need some nonspontaneous external capitaleven if g is very small)? Explain.
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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Assume that an average firm in the office supply business has a 6% profit margin, a 40%
total liabilities/assets ratio, a total assets turnover of 2 times, and a dividend payout ratio
of 40%. Is it true that if such a firm is to have any sales growth (g>0), it will be forced to
borrow or to sell common stock (that is, it will need some nonspontaneous external capital
even if g is very small)? Explain.
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