If a Firm Bases Its Growth Projection on the Rate

question 59

Multiple Choice

If a firm bases its growth projection on the rate of sustainable growth, and shows positive net income, then the:

• A)fixed assets will have to increase at the same rate, regardless of the current capacity level.
• B)number of common shares outstanding will increase at the same rate of growth.
• C)debt-equity ratio will have to increase.
• D)debt-equity ratio will remain constant while retained earnings increase.
• E)fixed assets, debt-equity ratio, and number of common shares outstanding will all increase.

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Definitions:

Debt-To-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Liquidity Ratios

Ratios that measure a company’s ability to meet its currently maturing obligations.

Operating Cycle

The average period of time required for a business to make an initial outlay of cash to produce goods or services, sell them, and receive cash back from customers.

Earnings Per Share

A financial metric that measures the amount of net income earned per share of stock, used to gauge a company's profitability.