If a Firm with a Positive Net Worth Is Operating

question 31

True/False

If a firm with a positive net worth is operating its fixed assets at full capacity, if its dividend payout ratio is 100%, and if it wants to hold all financial ratios constant, then for any positive growth rate in sales, it will require external financing.

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Definitions:

Nondirectional Hypothesis

A hypothesis that predicts the existence of a relationship, not its direction.

Return on Equity

A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively management uses equity investments.

Total Capitalization

The total value of a company’s outstanding equity and debt.

Note Payable

A liability in a formal written promise to pay a specific amount of money at a future date or dates.