Assuming a Return on Equity Greater Than the Required Return

question 61

Multiple Choice

Assuming a return on equity greater than the required return, an increase in the dividend payout ratio will cause a(n) _____ in the sustainable growth rate.

• A) increase
• B) decrease
• C) no change
• D) decrease only if the change is temporary
• E) increase only if the change is temporary

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Definitions:

Salvage Value

The calculated resale worth of an asset at the close of its efficient lifespan.

Depreciation

The allocation process of a tangible asset's cost over the period it is useful.

Double-Declining-Balance

A method of accelerated depreciation which doubles the normal depreciation rate, reducing the value of an asset more quickly in its early years.

Salvage Value

The predicted residual value of an asset upon reaching the end of its practical lifespan.