Use the Following Two Statements to Answer This Question

question 14

Multiple Choice

Use the following two statements to answer this question:
I.A firm's sustainable growth rate decreases with higher profit margins, higher asset turnover, and higher debt.
II.A firm's sustainable growth rate can be estimated by multiplying the earnings retention ratio by the return on equity.

• A)I is correct, II is incorrect.
• B)I is incorrect, II is correct.
• C)I and II are correct.
• D)I and II are incorrect.

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Definitions:

Accrual-based Net Income

Net income calculated using the accrual method of accounting, recognizing revenues when earned and expenses when incurred, regardless of when cash transactions occur.

Excess Annual Amortization

Excess annual amortization refers to the amount of amortization expense that exceeds the expected or standard amount within a given year, often related to intangible assets.

Intra-entity Gain

The profit recognized from transactions occurring within the same legal entity or between affiliated entities under common control, often requiring elimination for consolidation purposes.

Trademarks

Identifiable symbols, names, or expressions legally registered or established by use as representing a company or product.