Exhibit 12.2 Use the Information Below for the Following Problem(S)

question 53

Multiple Choice

Exhibit 12.2
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 12.2.What is the expected sustainable growth rate?

• A) 9.0%
• B) 7.2%
• C) 6.0%
• D) 3.0%
• E) 3.6%

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Definitions:

Output

The amount of goods or services produced by a company, industry, or economy within a certain period.

Revenue

The total income generated by a company or organization from its normal business operations.

Marginal Product

The additional output that is produced by adding one more unit of a specific input, keeping all other inputs constant.

Profit-maximizing

A strategy or point where a firm or entity makes the highest possible profit under given market conditions.