A Firm's Planning Model Has Assets and Cash Proportional to Sales

question 27

Multiple Choice

A firm's planning model has assets and cash proportional to sales. The firm maintains a constant dividend payout ratio and a constant debt to equity ratio. Keying in on the asset to sales ratio, the firm's sustainable growth is _________ and ________ the asset to sales ratio.

• A) higher; higher
• B) higher; lower
• C) lower; lower
• D) constant; higher
• E) constant; lower

---

Definitions:

Federal Funds Market

The Federal Funds Market is a financial market that allows banks to borrow or lend excess reserves to each other on an overnight basis, with interest rates known as the federal funds rate.

Required Reserves

The minimum amount of funds that a bank must hold in reserve against deposit liabilities, as mandated by central banking authorities.

Open Market Sale

The selling of government bonds to the public or banks by the central bank to control the money supply.

Discount Rate

The interest rate charged by central banks on loans offered to commercial banks or the rate used to discount future cash flows to present value.