Corp has an 8% profit margin and a

Business Sep 03, 2020

Corp has an 8% profit margin and a .9 ratio of capital intensity. The firm maintains a 40% dividend payout ratio and a 10% rate of growth. The company wishes to keep its debt-equity ratio constant. What must the debt-equity ratio be?

Expert Solution

we have g=[m(1-d)A/E]/[A/S-m(1-d)A/E]
g=10%, A/S=0.9 m=8%d=40%
so we have
10%= [8%(1-40%)A/E]/[0.9-8%(1-40%)A/E]
9%-0.48%*A/E=4.8%*A/E
A/E=1.70
E/A=0.5866
D/A=1-0.5866=0.4133
D/E=70.46%

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote