A firm wishes to maintain an internal growth rate of 11 percent and a dividend payout ratio of 24 percent.The current profit margin is 7 percent and the firm uses no external financing sources.What must the total asset turnover rate be?
A)0.87 times
B)0.90 times
C)1.01 times
D)1.15 times
E)1.86 times

Question

Quizplus · Accepted Answer

Retention ratio = 1 - 0.24 = 0.76Internal growth rate = 0.11 = (ROA × 0.76)/[1 - (ROA × 0.76)]; ROA = 0.1304Return on assets = 0.1304 = 0.07 × TAT; Total asset turnover = 1.86 times

A Firm Wishes to Maintain an Internal Growth Rate of 11