A firm wishes to maintain an internal growth rate of 7.6 percent and a dividend payout ratio of 30 percent.
The current profit margin is 6 percent, and the firm uses no external financing sources.
What must total asset turnover be given the internal growth rate of 7.6 percent? (Do not round
intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Total asset turnover: _____ times
Guide On Rating System
Vote
To calculate the total asset turnover, we can use the following formula:
Internal growth rate = (1 + Profit margin) * Total asset turnover - 1
We are given the following information:
Profit margin = 6%
Internal growth rate = 7.6%
Dividend payout ratio = 30%
First, we need to calculate the sustainable growth rate:
Sustainable growth rate = Internal growth rate * (1 - Dividend payout ratio)
= 7.6% * (1 - 30%)
= 7.6% * 0.7
= 5.32%
Next, we can rearrange the formula for the internal growth rate to solve for the total asset turnover:
Total asset turnover = (Internal growth rate + 1) / (1 + Profit margin)
Total asset turnover = (5.32% + 1) / (1 + 6%)
= 1.0532 / 1.06
= 0.99283
Rounded to 2 decimal places, the total asset turnover is approximately 0.99 times.
Got a question with my answer?
Cheapmath.com is completely free!
Asking question is free.
Getting answers is free.
+99