Calculate the Rate at Which the Firm Can Grow Without

question 115

Multiple Choice

Calculate the rate at which the firm can grow without changing its leverage if its payout ratio is 70%, equity outstanding at the beginning of the year is $900,000, and its net income for the year is $150,000:

• A)5.00%
• B)11.67%
• C)14.00%
• D)16.67% ROE = 150,000/900,000 = 16.67%
• Internal growth rate = 0.30 x 0.1667

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Definitions:

Investment Line

A graphical representation showing the relationship between the level of investment and the rate of return or interest rate.

Income Axis

The vertical axis on a graph that represents different levels of income, commonly used in economics.

Vertical Axis

In a graph or chart, this is the y-axis, which typically shows the range of values for a dependent variable.

Horizontal Axis

In a graph, this axis typically represents the independent variable or the variable that is being manipulated or changed.