Based on the following information, what is the sustainable growth rate of Hendrix Guitars, Inc.?

A firm wishes to maintain a growth rate of 8 percent and a dividend payout ratio of 62 percent. The ratio of total assets to sales is constant at 1, and the profit margin is 10 percent. What must the debt-equity ratio be if the firm wishes to keep that ratio constant?    A.  0.05 B.  0.40 C.  0.55 D.  0.60 E.  0.95 Retention ratio = 1 - 0.62 = 0.38 Sustainable growth rate = 0.08 = (ROE × 0.38)/[1 - (ROE × 0.38)]; ROE = 0.1949 Return on equity = 0.1949 = 0.10 × (1/1) × (1 + D/E); D/E = 0.95

95.

A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent. The current profit margin is 7 percent and the firm uses no external financing sources. What must the total asset turnover rate be?    A.  0.87 times B.  0.90 times C.  1.01 times D.  1.15 times E.  1.86 times Retention ratio = 1 - 0.24 = 0.76 Internal growth rate = 0.11 = (ROA × 0.76)/[1 - (ROA × 0.76)]; ROA = 0.1304 Return on assets = 0.1304 = 0.07 × TAT; Total asset turnover = 1.86 times

96.

Based on the following information, what is the sustainable growth rate of Hendrix Guitars, Inc.?       A.  7.68 percent B.  9.52 percent C.  11.12 percent D.  13.49 percent E.  14.41 percent Total debt ratio = 0.66 = TD/TA TA/TD = 1/0.66 1 + TD/TE = 1/0.66 D/E = 1/[(1/0.66) - 1] = 1.941176 Return on equity = 0.056 × 1.76 × (1 + 1.941176) = 0.289882 Retention ratio = 1 - 0.7 = 0.3 Sustainable growth rate = (0.289882 × 0.3)/[1 - (0.289882 × 0.3)] = 9.52 percent