If a Non-Dividend-Paying Firm Bases Its Growth Assumptions on the Sustainable

question 68

Multiple Choice

If a non-dividend-paying firm bases its growth assumptions on the sustainable rate of growth and shows positive net income,then the pro forma statement must reflect

• A)an increase in fixed assets irrespective of the firm's current operating capacity.
• B)an increase in both sales and the debt-equity ratio.
• C)both an increase in the total asset turnover and in the equity multiplier.
• D)a constant debt-equity ratio and an increase in retained earnings.
• E)increases in fixed assets,the debt-equity ratio,and the number of shares outstanding.

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Definitions:

Foreign Exchange Rates

The value of one currency for the purpose of conversion to another currency.

Economic Conditions

The state of the economy at a given time, including variables such as inflation, unemployment, and economic growth.

Significant Influence

The power to participate in the financial and operating policy decisions of another company, but not control them.

Voting Stock

Shares that give the holder the right to vote on corporate matters, such as electing the board of directors and approving corporate policies.