Which One of the Following Is Correct When a Firm's

question 57

Multiple Choice

Which one of the following is correct when a firm's pro forma statements project a net income of $5,000 and an external financing requirement of $2,000?

• A) Dividends cannot exceed $3,000.
• B) Total assets cannot grow by more than $3,000.
• C) Retained earnings cannot grow by more than $5,000.
• D)The internal growth rate is 60%.

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Definitions:

Debt

Amount of money borrowed by one party from another, used by many corporations to grow beyond what they could from earnings alone.

Equity

The value of an ownership interest in property, including shareholders' equity in a corporation, representing assets minus liabilities.

Stock Repurchase

A company's buyback of its own shares from the marketplace, reducing the number of outstanding shares, which can increase the value of remaining shares.

Investment

The process of distributing funds or resources in anticipation of earning profits or income.