Question
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
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:
Blue Elk Manufacturing has no debt in its capital structure and has $100 million in assets. Its sales revenues last year were $30 million with a net income of $5 million. The company distributed $1.45 million as dividends to its shareholders last year.
What is the firms self-supporting, growth rate? (Note: Do not round your intermediate calculations.)
1.47%
6.51%
3.68%
6.89%
Which of the following are assumptions of the self-supporting growth model? Check all that apply.
The firms liabilities and equity must increase at the same rate.
The firm pays no dividends.
The firm maintains a constant net profit margin.
The firms total asset turnover ratio remains constant.
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