The Sustainable growth Rate The sustainable growth rate tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio. ROExb Sustainable Growth Rate= 1-ROE×b 264×(2/3) =.2136 1-.264×(2/3) =21.36%
20 The Sustainable Growth Rate n The sustainable growth rate tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio. 21.36% .2136 1 .264 (2 / 3) .264 (2 / 3) 1-ROE b ROE b Sustainable GrowthRate
Determinants of Growth Profit margin-operating efficiency Total asset turnover-asset use efficiency Financial leverage-choice of optimal debt ratio a Dividend policy -choice of how much to pay to shareholders versus reinvesting in the firm 21
21 Determinants of Growth n Profit margin – operating efficiency n Total asset turnover – asset use efficiency n Financial leverage – choice of optimal debt ratio n Dividend policy – choice of how much to pay to shareholders versus reinvesting in the firm
Chapter 5 Introduction to Valuation:The Time Value of Money 22
22 Chapter 5 Introduction to Valuation: The Time Value of Money
Chapter Outline Future Value and Compounding Present Value and Discounting More on Present and Future Values 23
23 Chapter Outline n Future Value and Compounding n Present Value and Discounting n More on Present and Future Values
Future Values:General Formula ■FV=PV(1+r)t oFV future value PV present value or period interest rate,expressed as a decimal T=number of periods Future value interest factor =(1 r)t 24
24 Future Values: General Formula n FV = PV(1 + r) t q FV = future value q PV = present value q r = period interest rate, expressed as a decimal q T = number of periods n Future value interest factor = (1 + r) t