Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

5. Sustainable growth As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting, or sustainable, growth model helps

5. Sustainable growth

As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting, or sustainable, growth model helps a firm assess how rapidly it can grow, while maintaining a balance between its cash outflows (increases in noncash assets) and inflows (funds resulting from increases in liabilities or equity).

Consider the following case of Green Caterpillar Garden Supplies Inc.:

Green Caterpillar Garden Supplies Inc. has no debt in its capital structure and has $150,000,000 in assets. Its sales revenues last year were $45,000,000 with a net income of $1,500,000. The company distributed $195,000 as dividends to its shareholders last year.

Given the information above, what is Green Caterpillar Garden Supplies Inc.s sustainable growth rate?

4.7609329%

0.88%

2.1193124%

0.1300402%

Which of the following are assumptions of the sustainable (self-supporting) growth model? Check all that apply.

The firms total asset turnover ratio remains constant.

The firm uses all equity and no debt financing.

The firm pays out a constant proportion of its earnings as dividends.

The firm will not issue any new common stock next year.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Of Capital Applications And Examples

Authors: Shannon P. Pratt, Roger J. Grabowski, Richard A. Brealey

5th Edition

1118555805, 9781118555804

More Books

Students also viewed these Finance questions

Question

What is a wage bracket withholding table

Answered: 1 week ago

Question

Appreciate why organizational managers prefer to remain union-free

Answered: 1 week ago