а. samm Corp had salės of $300 illion, a net pront margin of 8% and a dividend payout ratio of 30%. At the end of the year, its total assets amounted to $500 million while its total debt was $200 million. Calculate Gamma's return on equity (ROE) and its sustainable growth rate (g*). Employ the DuPont system of financial ratios to arrive at your response. b. Suppose now that Gamma expects to maintain similar asset, sales and debt profiles but that, due to a cost savings initiative, the company expects to earn an additional $3 million in after tax income, all of which will be paid out in dividends. Recalculate Gamma's return on equity (ROE) and its sustainable growth rate (g*). Once again, employ the DuPont system of financial ratios to arrive at your response. How did your calculations differ in a. and b. and why?
а. samm Corp had salės of $300 illion, a net pront margin of 8% and a dividend payout ratio of 30%. At the end of the year, its total assets amounted to $500 million while its total debt was $200 million. Calculate Gamma's return on equity (ROE) and its sustainable growth rate (g*). Employ the DuPont system of financial ratios to arrive at your response. b. Suppose now that Gamma expects to maintain similar asset, sales and debt profiles but that, due to a cost savings initiative, the company expects to earn an additional $3 million in after tax income, all of which will be paid out in dividends. Recalculate Gamma's return on equity (ROE) and its sustainable growth rate (g*). Once again, employ the DuPont system of financial ratios to arrive at your response. How did your calculations differ in a. and b. and why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:a. During 2009, Gamma Corp had sales of $300 million, a net profit margin of
8% and a dividend payout ratio of 30%. At the end of the year, its total
assets amounted to $500 million while its total debt was $200 million.
Calculate Gamma's return on equity (ROE) and its sustainable growth rate
(g*). Employ the DuPont system of financial ratios to arrive at your response.
b. Suppose now that Gamma expects to maintain similar asset, sales and debt
profiles but that, due to a cost savings initiative, the company expects to
earn an additional $3 million in after tax income, all of which will be paid out
in dividends.
Recalculate Gamma's return on equity (ROE) and its sustainable growth rate
(g*). Once again, employ the DuPont system of financial ratios to arrive at
your response.
How did your calculations differ in a. and b. and why?
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