What is the expected rate at which the firm could grow

Reference no: EM131796376

Question: Given the following information about a farm business:

Debt-to-equity ratio	2.0
Expected return on assets	12%
Expected interest rate on debt	8%
Consumption rate	60%
Tax rate	20%
Standard deviation of return on assets	4%
Standard deviation of interest rate	2%

a. What is the expected rate at which this firm could grow?

b. What might the manager do to increase the rate of growth?

c. What level of risk is associated with the rate of growth found in a?

d. Suppose another lender allows a maximum debt-to-equity ratio of 2.5, with an interest rate of 9% and a standard deviation of 4%. How do expected growth and risk for these conditions compare with the terms cited above?

Reference no: EM131796376

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