Use this key financial data from the most recent annual report of Rancho Inc. to answer the questions that follow.
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Sales
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$ 12.7 million
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Net income
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$ 1.3 million
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Total assets
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$ 7.6 million
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Total equity
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$ 5.2 million
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Dividends
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$ 0.3 million
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The firm's CFO wishes to use this data to estimate the firm's sustainable growth rate
a. Use the data provided to calculate Rancho's net profit margin, assets-to equity ratio, total asset turnover ratio, and its dividend payout ratio.
b. Use your findings in part (a) to find Rancho's sustainable growth rate .
c. Interpret the sustainable growth rate calculated in part (b). Does this rate of growth assure shareholder wealth maximization? Explain.
d. If the firm's Board feels that it is best for its shareholders if the firm grows more slowly, what alterations in each of the baseline assumptions would be necessary to achieve this objective?