Answered

A firm wishes to maintain an internal growth rate of 7.1 percent and a dividend payout ratio of 25 percent. The current profit margin is 6.5 percent, and the firm uses no external financing sources. What must total asset turnover be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer :

opudodennis

Answer:

1.46 times

Step-by-step explanation:

The growth,[tex]g[/tex] rate is defined as Return on Equity times (1-Dividend payout ration):

[tex]g=ROE\times(1-Dividend \ Payout \ Ratio)[/tex]

Given that [tex]g=7.1, dpr=0.25,[/tex]

The total asset turnover is calculated as:

[tex]0.071=ROE\times(1-0.25)\\ROE=0.0947[/tex]

#We know that

[tex]ROE=Profit \ margin \times \ Total \ Asset \ Turnover\\0.0947=0.065\times \ Total \ Asset \ Turnover\\1.4564=\ Total \ Asset \ Turnover\\[/tex]

Hence, turn-over required for a 7.1% internal growth is 1.4564times

The asset turnover is 1.46 times.

Calculation of an asset turnover:

Since A firm wishes to maintain an internal growth rate of 7.1 percent and a dividend payout ratio of 25 percent. The current profit margin is 6.5 percent.

So,

Growth rate = ROE × (1 - dividend payout ratio)

7.1% = ROE × (1 - 0.25)

ROE = 0.0947

Now the asset turnover is

= 0.0947 ÷ 0.065

= 1.45 times

Learn more about turnover here: https://brainly.com/question/14170257

Other Questions