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.

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Definitions:

Net Worth

The total value of an individual's or entity's assets minus their liabilities.

Total Value

The aggregate worth of a good, service, product, or other item as perceived by its users.

Economic Income

An individual's total earnings, including wages, salaries, investments, and other sources, assessed for economic analysis.

Capital Gains

The profit earned from the sale of an asset or investment which has increased in value over the holding period.