Question

9) A firm has an ROE of 15% and a debt-equity ratio of 40%. If it wishes to grow by 9% a year without external financing, what is the maximum proportion of earnings that it can pay out?9) _______

A) 12% B) 1% C) 16% D) 10%

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins Formulas Data Review - 2x Σ AutoSum : A 11 A = = V General A A = E Wrap Text Merge & Center $ - % 8. Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Filter Editing Find & Select Alignment Number Cells File Home Insert Page Layout % Cut Calibri Ea Copy Paste Format Painter B I U D Clipboard Font CN410 - five CJ CK CL 394 395 396 397 398 399 CM CN со CP T CO CR CS CT cu DEBT EQUITY RATIO = EQUITY MULTIPLIER = EQUITY MULTIPLIER = 0.40 1 + DEBT EQUITY RATIO 1+0.4 = 1.4 400 ROE = 15% = ROA = ROA X EQUITY MULTIPLIER ROAX 1.4 10.714286% 401 402 403 404 INTERNAL GROWTH RATE = (ROA X b) 9% = 10.714286% Xb 84% = b DIVIDEND PAYOUT RATIO = 100-84% = 16% 405 406 407 408 ANSWER C: 16% 409 410 411 412 H O FCFARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST I CF CASH FLOW STATW ferences PREF AND DIV POLICY I BOU 130% Red 0 EDER 9 * * OENG 29-10-2019