The Sustainable Rate of Growth

question 9

Multiple Choice

The sustainable rate of growth:

• A) increases as the dividend payout ratio increases.
• B) must be moderate over the long-term even if it is high in the short-term.
• C) assumes the debt-equity ratio will increase at the same rate as the growth rate.
• D) must exceed the required rate of return to be used in the dividend discount model.

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Definitions:

Balance Sheet

An account showing the assets, liabilities, and equity of shareholders of a firm on a specific date.

Revenue

The total amount of money received by a company for goods sold or services provided during a certain time period.

Manufacturing Overhead

This consists of all the indirect costs related to manufacturing that cannot be directly traced to specific units produced, such as electricity for the factory or maintenance expenses.

Administrative Costs

Expenses related to the general operations of a business, including salaries of senior executives, office supplies, and utilities.