Assume that an average firm in the office supply business has a 6% profit margin, a 40%total liabilities/assets ratio, a total assets turnover of 2 times, and a dividend payout ratioof 40%. Is it true that if such a firm is to have any sales growth (g>0), it will be forced toborrow or to sell common stock (that is, it will need some nonspontaneous external capitaleven if g is very small)? Explain.

Assume that an average firm in the office supply business has a 6% profit margin, a 40%total liabilities/assets ratio, a total assets turnover of 2 times, and a dividend payout ratioof 40%. Is it true that if such a firm is to have any sales growth (g>0), it will be forced toborrow or to sell common stock (that is, it will need some nonspontaneous external capitaleven if g is very small)? Explain.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 24E: A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage...

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