Explore BrainMass
Share

Sustainable growth rate, effective rate of interest

This content was STOLEN from BrainMass.com - View the original, and get the 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 September 25, 2018, 3:35 am 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