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16 July, 09:39

A firm wishes to maintain an internal growth rate of 8 percent and a dividend payout ratio of 36 percent. The current profit margin is 5.8 percent and the firm uses no external financing sources. What must total asset turnover be? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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  1. 16 July, 09:40
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    2.16 times

    Explanation:

    Given that,

    Internal growth rate = 8 percent

    Dividend payout ratio = 36 percent

    Current profit margin = 5.8 percent

    Therefore,

    Internal Growth Rate = (1 - Dividend Payout Ratio) * ROA

    8% = (1 - 36%) * ROA

    0.08 = 0.64 * ROA

    ROA = 0.08 : 0.64

    = 0.125

    ROA = Profit Margin * Total Asset Turnover

    0.125 = 0.058 * Total Asset Turnover

    Total Asset Turnover = 0.125 : 0.058

    = 2.16 times
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