You Are a Financial Consultant to a Company That Asks

question 50

Multiple Choice

You are a financial consultant to a company that asks you what effect a change in leverage has on the firm's sustainable growth.Assuming all other things remain constant and if the percentage of assets that are financed with debt increases,then how will that affect the firm's sustainable growth rate?

• A) the sustainable growth rate will decrease
• B) the sustainable growth rate will increase
• C) the effect is indeterminable
• D) the sustainable growth rate will neither decrease or increase

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Definitions:

Self-Interest

The personal interest or advantage that individuals seek to maximize their own welfare or benefit.

Public Good

A product or service that is available for all people to consume, regardless of who pays for it, and where one person's consumption does not reduce availability to others.

Adam Smith

A Scottish economist and philosopher, best known for his book "The Wealth of Nations," in which he laid the foundations of classical free market economic theory.

Karl Marx

A 19th-century philosopher, economist, and political theorist best known for his theories about capitalism and communism.