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29 May, 22:29

The blue giant has a profit margin of 6.2 percent and a dividend payout ratio of 40 percent. The capital intensity is 1.08 and the debt-equity ratio is. 54. What is the sustainable rate of growth?

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  1. 30 May, 01:52
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    First we calculate the return on equity (ROE) based on the Du-pont equation

    ROE = Net profit margin * Total asset turnover * equity multiplier

    Total asset turnover = 1/capital intensity = 1/1.08

    Equity multiplier = 1 + debt to equity = 1 + 0.54 = 1.54

    net profit margin = 6.2% = 0.062

    ROE = 0.062*1/1.08*1.54 = 0.0884 = 8.84%

    Sustainable growth rate = ROE * (1 - dividend payout)

    Sustainable growth rate = 0.0884 * (1-0.4)

    Sustainable growth rate = 0.053 = 5.3%

    Sustainable growth rate = 5.30%
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