Which of the Following Statements Is CORRECT

question 31

Multiple Choice

Which of the following statements is CORRECT?

• A) The sustainable growth rate is the maximum achievable growth rate without the firm having to raise external funds.In other words,it is the growth rate at which the firm's AFN equals zero.
• B) If a firm's assets are growing at a positive rate,but its retained earnings are not increasing,then it would be impossible for the firm's AFN to be negative.
• C) If a firm increases its dividend payout ratio in anticipation of higher earnings,but sales and earnings actually decrease,then the firm's actual AFN must,mathematically,exceed the previously calculated AFN.
• D) Higher sales usually require higher asset levels,and this leads to what we call AFN.However,the AFN will be zero if the firm chooses to retain all of its profits,i.e. ,to have a zero dividend payout ratio.
• E) Dividend policy does not affect the requirement for external funds based on the AFN equation.

---

Definitions:

Active Voice

A sentence structure where the subject performs the action stated by the verb, emphasizing the actor.

Abstract Words

Terms that represent ideas, qualities, or concepts rather than tangible objects, making them subjective and often open to interpretation.

Concrete Words

Words that describe physical objects, actions, or phenomena that can be observed and measured.

Vague

Lacking clarity or precision in thought or expression, often intentionally.