Suppose you're looking at a firm that has a net profit margin of 15% and a total asset turnover ratio of 60%. It is financed with 40% equity and 60% debt (which means that shareholder's equity is 40% of assets on the balance sheet), and pays out 75% of its earnings as dividends.
a) Calculate its ROA and ROE.
b) Calculate its sustainable growth rate, and explain how it is affected by the firm's financing choices and dividend policy.
c) How do firms decide what growth rate to target when they make these choices? Explain what a "healthy" growth rate would look like.