A fiRm Wants to Maintain a Growth Rate of 5

question 264

Multiple Choice

A firm wants to maintain a growth rate of 5% without incurring any additional equity financing. The firm maintains a constant debt-equity ratio of .4, a total asset turnover ratio of 1.15, and a profit
Margin of 7 percent. What must the retention ratio be?

• A) 42.3 %
• B) 50.0 %
• C) 53.9%
• D) 57.2%
• E) 61.3%

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Definitions:

Lower of Average Cost or Market

An inventory valuation method where inventory is valued at either its average cost or market value, whichever is lower.

Cost-to-retail Percentage

A ratio used in inventory valuation that compares the cost of inventory to its retail price.

Freight-in Charges

Costs associated with transporting goods from the supplier to the buyer's location.

Sales Returns

Transactions where customers return previously purchased merchandise, leading to a reduction in the seller's revenue.