USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 45

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that the dividend payout ratio will be 65 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 9.1. What is the expected sustainable growth rate?

• A) 2.80 percent
• B) 4.20 percent
• C) 5.25 percent
• D) 7.80 percent
• E) 9.75 percent

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Definitions:

Isocost Line

A graph representing all combinations of the inputs' quantities that equal a certain cost.

Capital

Financial assets or the financial value of assets, such as cash and goods, used to generate wealth through investment.

Labor

Refers to human efforts used in the production of goods and services.

Cost Of Capital

The minimum profit percentage a corporation needs to achieve on its ventures to sustain its market value and draw in capital.