Suppose That Assets and Costs Maintain a Constant Ratio to Sales

question 296

Multiple Choice

Suppose that assets and costs maintain a constant ratio to sales. The firm retains 30% of earnings. If the firm is producing at full capacity, what is the maximum growth rate (assuming no equity sales) that will maintain a constant debt-equity ratio?

• A) 5.2%
• B) 15.6%
• C) 18.8%
• D) 21.0%
• E) 29.2%

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Definitions:

Crushed

An injury or condition resulting from extreme pressure or force applied to an object, part of the body, or material, often leading to significant damage or compression.

Avulsion

Avulsion is an injury in which a body structure is forcibly detached from its normal point of insertion by either trauma or surgery.

Burst

A sudden release of energy or activity, or the act of breaking apart or rupturing violently.

Comminuted

Describing a fracture in which the bone is broken into several pieces, often requiring surgery to repair.