A Firm That Is Growing More Slowly Than Its Sustainable

question 12

Multiple Choice

A firm that is growing more slowly than its sustainable growth rate may generates excess cash.If the firm chooses to keep the excess cash which of the following is NOT true?

• A)Holding on to excess cash may signal OVER utilization of assets.
• B)Holding on to excess cash often is a negative stock signal in that investors interpret the excess cash is a result of no attractive investment alternatives.
• C)Holding on to excess cash may attract unwanted potential investors who are attracted to the excess cash for their own purposes.
• D)Holding on to excess cash may signal UNDER utilization of assets.

---

Definitions:

Present Value

The immediate value of a future amount of money or a series of payments, discounted at a given rate of return.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Required Rate

The minimum acceptable return on an investment or project, often used in capital budgeting.

Annuity

A fiscal instrument that provides a consistent flow of income to a person, often employed as a revenue source for those in retirement.