Question: Assume that a firm has a net income in 20x9 of $20 and its end-of-year 20x8 total assets were $450. Further assume that the firm has a standing requirement to maintain a debt/equity ratio of 0.8, and that its managers are prohibited from further borrowing or stock issuance.
1) What is this firm's maximum sustainable growth rate?
2) If the firm pays $6 of the $20 net income as a dividend, and plans to maintain this payout ratio into the future, now what is its maximum sustainable growth rate?
3) If the firm uses $12 of the $20 net income to repurchase some of its outstanding shares, now what is its maximum
sustainable growth rate?
4) If the firm takes action as described in parts b and c, what would its maximum sustainable growth rate be?