USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 134

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 9.2. What is the expected sustainable growth rate?

• A) 9.0 percent
• B) 7.2 percent
• C) 6.0 percent
• D) 3.0 percent
• E) 3.6 percent

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Definitions:

Price Level

A measure of the average prices of goods and services in an economy, often used to evaluate inflation or deflation over time.

Real Wage

The amount of goods and services a worker can purchase with his or her nominal wage; the purchasing power of the nominal wage.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource, such as labor or capital.

Total Revenue

is the overall amount of money generated by a business from its activities, including sales of goods or services, before any expenses are deducted.