Loose Leaf for Corporate Finance Format: Loose-leaf
Loose Leaf for Corporate Finance Format: Loose-leaf
12th Edition
ISBN: 9781260139716
Author: Ross
Publisher: Mcgraw Hill Publishers
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Chapter 3, Problem 4CQ

Sustainable Growth In the chapter, we used Rosengarten Corporation to demonstrate how to calculate EFN. The ROE for Rosengarten is about 7.3 percent, and the plowback ratio is about 67 percent. If you calculate the sustainable growth rate for Rosengarten, you will find it is only 5.14 percent. In our calculation for EFN, we used a growth rate of 25 percent. Is this possible? (Hint: Yes. How?)

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Sustainable Growth Rate The Raindrop Company has an ROE of 12.1 percent and a payout ratio of 25 percent.a. What is the company’s sustainable growth rate?b.  Can the company’s actual growth rate be different from its sustainable growth rate? Why or why not?c.  How can the company increase its sustainable growth rate?
Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV0 = $1 per share.   Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of .5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
This is the full question Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV0 = $1 per share.   Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of 0.5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

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Loose Leaf for Corporate Finance Format: Loose-leaf

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