As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting 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 this case:

Green Caterpillar Garden Supplies Inc. 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 $1.90 million as dividends to its shareholders last year.

What is the firms self-supporting, growth rate? (Note: Do not round your intermediate calculations.)

0.81%

4.13%

0.64%

2.77%

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

The firms total asset turnover ratio remains constant.

The firms liabilities and equity must increase at the same rate.

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

The firm pays no dividends