Net profit margin= 5% Total asset turnover= 2 Beta of company stock=1.5 Risk-free rate= 5% Expected Rate of return for stock=10% Financial leverage= 2.5 The analysis expects the information above accurately reflect the future. If the company wants to achieve a growth rate of 15% without changing its capital structure or issuing new equity, the maximum dividend payout ratio for the company would be closest to: a) 5% b) 12.5% c) 40% d) 60%
2.5*2*0.05 = 0.25 ROE 0.15 = 0.25(1-payout) 1-payout = 0.6 max payout = 40%
ROE = 5%*2*2.5 = 25% g = rr * ROE 15% = rr*25% rr = 60% payout rate = 1- rr = 40% c
g = (1-div payout) * ROE thats all i know. Don’t know how you are going to calculate ROE.
ROE = NPM * TAT * FL Dupont Rule # 1 (small 3 factor model). = .05 * 2 * 2.5 = .25 CP
ROE = 5%*2*2.5 = 25% What is this? where can I read about this stuff.
Pepps it is ROE calculated under Du Pout ROE= Net profit margin x asset turnover x leverage
i need to do this DUpont hard. currently doing quant!
pepp It is the Dupont Model 2 models Model 1: ROE = NI / CE = NI / NS * NS / TA * TA / CE = Net Profit Margin * Total Asset Turnover * Financial Leverage Model 2: = NI / TA * TA / CE = EBIT (1-T) / TA * NS / TA * TA / CE = (EBT - Int)/TA * Financial Leverage * (1-T) = [EBT/TA - Int / TA] * Financial Leverage * (1-T) = [EBT/NS * NS / TA - Int / TA] * Financial Leverage * (1-T) = [Operating Profit Margin * Total Asset Turnover - Int Coverage] * Financial Leverage * Tax Burden These are extremely important, and are definitely part of the FSA Ratio Analysis chapter. CP
pepp Wrote: ------------------------------------------------------- > i need to do this DUpont hard. currently doing > quant! You must remember Du Pont as if it is your name…it is a must know!
answer is C, good work guys
Yay! I got C and quick…I feel really good about DuPont and WACC, etc. finally. Now i just need to really focus on CFs.