Question
As a firm grows, it must support increases in revenue with new investments in assets. The sustainable, or self-supporting, growth model helps a firm asses
As a firm grows, it must support increases in revenue with new investments in assets. The sustainable, or self-supporting, growth model helps a firm asses 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 this case:
Green Moose Industries has no debt in its capital structure and has $300 million in assets. Its sales revenues last year were $180 million with a net income of $10 million. The company distributed $1.10 million as dividends to its shareholders last year.
What is the firm's sustainable growth rate?
0.37 %
3.85 %
3.06 %
0.90 %
Which of the following are assumptions of the sustainable (serf-supporting) growth model? Check all that apply.
Common stock is the firm's only form of equity.
The firm uses all equity and no debt financing.
The firm maintains a constant ratio of assets to equity.
The firm must issue the same number of new common shares that it issued last year.
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