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:

Classical Dichotomy

The conceptual distinction between real and nominal variables within the economy, implying that alterations in the money supply solely impact nominal variables.

Nominal Variables

Variables measured in monetary terms that have not been adjusted for inflation, representing current prices.

Real Variables

Economic variables measured in physical units, reflecting quantities and qualities, rather than their monetary value, often adjusted for inflation.

Money Supply

The overall financial resources at a certain point in time within an economy, encompassing all cash, coins, and checking and savings account balances.