A Firm Expects Growth Next Year to Be 10

question 110

Multiple Choice

A firm expects growth next year to be 10%.Its sustainable growth rate is 12%.Which of the following is true?

• A) The firm will need to raise additional debt such that its debt-to-equity ratio will increase.
• B) The firm may be able to keep its debt-to-equity ratio the same by reducing dividends (assuming they are projected to be high enough).
• C) The firm will need to raise additional capital through a stock issue.
• D) The firm will have excess cash to increase dividends, pay back debt, or repurchase equity.
• E) The firm will need to cut back on its planned investments.

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Definitions:

Financial Information

Data regarding the financial status of an entity, including income, expenses, assets, liabilities, and equity, often used for analysis.

Competitors

Entities or businesses competing in the same industry or market for customers.

Focus Group

Data-collection tool in which a moderator engages a small group of people as they discuss a particular topic or concept with each other in a spontaneous way.

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A laundry product added during the rinse cycle to make clothes feel softer, reduce static cling, and impart a pleasant scent.