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 Cold Duck Manufacturing Inc.:

Cold Duck Manufacturing Inc. has no debt in its capital structure and has $$200,000,000$ in assets. Its sales revenues last year were $$100,000,000$ with a net income of $$2,500,000.$ The company distributed $$135,000$ as dividends to its shareholders last year.

Given the information above, what is Cold Duck Manufacturing Inc.$\text{'}$s sustainable growth rate?

$3\mathrm{.}89\%$

$0\mathrm{.}07\%$

$1\mathrm{.}20\%$

$0\mathrm{.}56\%$

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

The firm's total asset turnover ratio remains constant.

The firm maintains a constant ratio of assets to equity.

The firm maintains a constant net profit margin.

The firm must issue the same number of new common shares that it issued last year.