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 $185,000 as dividends to its shareholders last year.

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

0.1233298%

4.5745333%

2.0358515%

0.88%

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 pays no dividends.

The firm maintains a constant net profit margin.

The firm maintains a constant ratio of assets to equity.