Explore BrainMass

Explore BrainMass

    Sustainable growth rate, effective rate of interest

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1) A firm's profit margin is 10% and its asset turnover ratio is .6. It has no debt, has net income of $10 per share, and pays dividends of $4 per share. What is the sustainable growth rate?

    2) A bank loan has a quoted annual rate of 6%. However, the borrower must maintain a balance of 25% of the amount of the loan, and the balance does not earn any interest.

    a) What is the effective rate of interest if the loan is for 1 year and is paid off in one payment at the end of the year?

    b) What is the effective rate of interest if the loan is for 1 month?

    © BrainMass Inc. brainmass.com June 3, 2020, 5:06 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/sustainable-growth-rate-effective-rate-of-interest-14573

    Solution Preview

    1) A firm's profit margin is 10% and its asset turnover ratio is .6. It has no debt, has net income of $10 per share, and pays dividends of $4 per share. What is the sustainable growth rate?

    Asset turnover ratio=0.6

    Profit margin=10%

    Therefore

    Earnings on equity=6.00%=0.6*0.1

    Earning per share=$10

    Dividend=$4

    Plowback ratio= ...

    Solution Summary

    Answers two questions on : 1) sustainable growth rate, 2) effective rate of interest

    $2.19

    ADVERTISEMENT