All of the Following Statements Are Correct Except

question 88

Multiple Choice

All of the following statements are correct except:

• A)The internal growth rate measures how quickly a firm can increase its asset base over the next year without raising outside funds.
• B)The retention rate represents the proportion of every $1 of earnings per share that is retained by the firm; in other words, it is equal to one minus the dividend payout ratio.
• C)The sustainable growth rate measures how quickly the firm can grow when it uses only debt financing to keep its capital structure constant over time.
• D)The internal and sustainable growth rate relationships suggest that there are three measurable influences on growth: dividend policy (as reflected in the retention rate), profitability (as measured by ROA), and the firm's capital structure (as measured by the equity multiplier).
• E)All of the above statements are correct.

---

Definitions:

Preemptive Right

A shareholder's right to buy additional shares of a company's stock before it is offered to the public, maintaining their proportional ownership.

Common Stock

Equity ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends and capital appreciation.

Ownership

The state or fact of exclusive rights and control over property, which can be an object, land/real estate, or intellectual property.

Dividend Growth Model

A method for valuing a stock by using predicted dividends and discounting them back to present value.