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 Blue Elk Manufacturing:

Blue Elk Manufacturing has no debt in its capital structure and has $100,000,000 in assets. Its sales revenues last year were $30,000,000 with a net income of $1,500,000. The company distributed $145,000 as dividends to its shareholders last year.

Given the information above, what is Blue Elk Manufacturings sustainable growth rate?

2.946184%

4.3402367%

1.37%

0.1452622%

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

A. The firm maintains a constant net profit margin.

B. The firms total asset turnover ratio remains constant.

C. The firm pays no dividends.

D. The firm maintains a constant ratio of liabilities to equity.