Weatherford Industries Inc. has the following ratios:A0*/S0 = 1.6; L0*/S0 = 0.4; profit margin = 0.10; and payout ratio = 0.45, or 45%. Sales lastyear were $100 million. Assuming that these ratios will remain constant, use the AFN equationto determine the maximum growth rate (the sustainable growth rate) Weatherford canachieve without having to employ nonspontaneous external funds.
Weatherford Industries Inc. has the following ratios:A0*/S0 = 1.6; L0*/S0 = 0.4; profit margin = 0.10; and payout ratio = 0.45, or 45%. Sales lastyear were $100 million. Assuming that these ratios will remain constant, use the AFN equationto determine the maximum growth rate (the sustainable growth rate) Weatherford canachieve without having to employ nonspontaneous external funds.
Chapter12: Corporate Valuation And Financial Planning
Section12.6: Additional Funds Needed (afn) Equation Method
Problem 5ST
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Weatherford Industries Inc. has the following ratios:
A0*/S0 = 1.6; L0*/S0 = 0.4; profit margin = 0.10; and payout ratio = 0.45, or 45%. Sales last
year were $100 million. Assuming that these ratios will remain constant, use the AFN equation
to determine the maximum growth rate (the sustainable growth rate) Weatherford can
achieve without having to employ nonspontaneous external funds.
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