The sustainable growth rate

Assignment Help Financial Management
Reference no: EM131073282

Your firm has an ROE of 12.0%, a payout ratio of 25%, $600,000 of stockholder's equity, and $400,000 of debt. If you grow at your sustainable growth rate this year, how much additional debt will you need to issue? The sustainable growth rate is %? The ending total assets at the sustainable growth rate will be $? Because the firm grew at its sustainable growth rate, its debt/equity ratio remains constant at 0.666667 and the debt-to-assets ratio will be 0.4. Thus, the new debt in the capital structure will be 0.4x$1,0900,000=$436,000. Since the firm started at $400,000, it will issue about $36,000 in additional debt. is the above statement true or false?

Reference no: EM131073282

Questions Cloud

What is the interest rate on the debt : Hubbard Industries is an all equity firm whose shares have an expected return of 11.3%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ration is 0.71. Due to the increase risk, shareholders now e..
Achieve organizational goals : How management and the HRM function support each other to achieve organizational goals. The role HR can play in supporting the development of organizational strategy.
Compute the price of bond : Compute the price of a 15 year bond, which pays 15.67 % coupon monthly, when investors require a 20% rate of return on such bonds. What would be its price 3 years from now, if the required rate of return at the end of 3 years is 10%?
Correlation between the daily returns : Stock X was just added to the Dow 30 Index. Prior to the addition, the correlation between the daily returns of X and the other 29 stocks in the Index was +0.40. How do you expect the daily return correlation to change after X is added to the Dow 30 ..
The sustainable growth rate : Your firm has an ROE of 12.0%, a payout ratio of 25%, $600,000 of stockholder's equity, and $400,000 of debt. If you grow at your sustainable growth rate this year, how much additional debt will you need to issue? The sustainable growth rate is %?
Expect the daily return correlation to change : Stock X was just added to the Dow 30 Index. Prior to the addition, the correlation between the daily returns of X and the other 29 stocks in the Index was +0.40. How do you expect the daily return correlation to change after X is added to the Dow 30 ..
Unwilling to take on any unnecessary risk : Assume that you own 200 shares of Duke Power (DUK)), which you bought for $64.00. You want to increase your return on this investment, but unwilling to take on any unnecessary risk. Which option strategy would you pursue? Be specific, thus I want you..
What is the time value of an option : What is the time value of an option? Why does an option’s time value decline as the option approaches expiration? What variables effect the Time Value of an Option? The Intrinsic Value?
What is the bond yield to maturity if the bond is selling : A 30-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 10%. What is the bond’s yield to maturity if the bond is selling for $1,060? What is the bond’s yield to maturity if the bond is selling for $..

Reviews

Write a Review

Financial Management Questions & Answers

  What is the purpose of working capital

What is the purpose of working capital? What is the working capital cycle and why must it be managed?

  Societal expectations affect corporations and initiatives

How do societal expectations affect corporations and their initiatives? Give an example of a company that had to alter a product or service because of society's concerns about its health, moral, or social impacts.

  An investor is considering a two-asset portfolio

An investor is considering a two-asset portfolio. Stock A has an exected return of $4.50 per share with a standard deviation of $1.00, while stock B has an expected return of $3.75 with a standard deviation of $.75. The covariance between the two sto..

  Including the final quarter when the principal falls due

If interest rates were 4 percent, how much would you give today for a loan with a $100,000 balloon principal payment due in a year and that will pay $16,000 in interest at the end of each quarter, including the final quarter when the principal falls ..

  Calculate the amount of the last payment

Earl obtained a loan for 19000 dollars. He will pay it back in 35 months with an interest rate of 5 yearly compounded monthly. Each payment will be $200 larger than the previous payment. Calculate the amount of the last payment.

  Company is evaluating continuous baking oven

A company is evaluating a continuous baking oven. New oven would cost $685,000, including cost of equipment, shipping and installation. No increase in capcity with new oven, however operating expenses would be reduced by $105,000.

  The required rate of return on the project

A company considers a new project. The required rate of return (WACC) on the project is 10 percent. Which of the following statement is correct?

  Accounts payable and cost of goods sold

Suppose firm XYZ has AR (Accounts Receivable) = 500, Sales = 3000, Inventory = 300, Cost of Goods Sold = 1200, and AP (Accounts Payable) = 100. How much cash does firm XYZ save if it reduces its Days Sales Outstanding by 10 days? What are specific ac..

  Discuss the implication of correlation coefficient

Please draw the efficient frontiers and discuss the relevant implication under the following assumptions: (a) Risk free assets are possible and short sale is not allowed; (b) Risk free assets are impossible and short sale is not allowed. Please discu..

  Explain rate of return if the market risk premium increased

What is the required rate of return if the market risk premium increased to 20% because of the increase in investors' risk aversion assuming that the return on the risk-free asset remains the same as in question 2 above.

  What is the projects discounted payback period

A project has an initial cost of $35,000, expected net cash inflows of $8,000 per year for 7 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places.

  About the invest in stock portfolio

You have $255,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14 percent, and Stock L, with an expected return of 10.6 percent. Required: If your goal is to create a portfolio with an expected return of 12.25 ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd