R. N. C., Inc. desires a sustainable growth rate of 4.5 percent while maintaining a 40 percent dividend payout ratio

R. N. C., Inc. desires a sustainable growth rate of 4.5 percent while maintaining a 40 percent dividend payout ratio and a 6 percent profit margin. The company has a capital intensity ratio of 1.23. What equity multiplier is required to achieve the company's desired rate of growth?    A.  1.33 B.  1.38 C.  1.42 D.  1.47 E.  1.53 0.045 = [ROE × (1 - 0.40)]/{1 - [ROE × (1 - 0.40)]}; ROE = .07177 0.07177 = 0.06 × (1/1.23) × EM; EM = 1.47

54.

A firm has a retention ratio of 45 percent and a sustainable growth rate of 6.2 percent. The capital intensity ratio is 1.2 and the debt-equity ratio is 0.64. What is the profit margin?    A.  6.28 percent B.  7.67 percent C.  9.49 percent D.  12.38 percent E.  14.63 percent 0.062 = [ROE × 0.45]/[1 - (ROE × 0.45)]; ROE = .129734 0.129734 = PM × (1/1.2) × (1 + .64); PM = 9.49 percent

55.

Frasier Cabinets wants to maintain a growth rate of 5 percent without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .0.55, a total asset turnover ratio of 1.30, and a profit margin of 9.0 percent. What must the dividend payout ratio be?    A.  26.26 percent B.  38.87 percent C.  49.29 percent D.  61.13 percent E.  73.74 percent Return on equity = 0.09 × 1.30 × (1 + 0.55) = 0.18135 Sustainable growth = [0.18135 × b]/[1 - (0.18135 × b)] = .05; b = 0.2626 Payout ratio = 1 - 0.2626 = 73.74 percent