The Growth Rate of Equity Earnings Without External Financing Is

question 6

Multiple Choice

The growth rate of equity earnings without external financing is equal to which of the following?

• A) Retention rate plus return on equity.
• B) Retention rate minus return on equity.
• C) Retention rate divided by return on equity.
• D) Retention rate times return on equity.
• E) Return on equity divided by retention rate.

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Definitions:

Financial Distress Costs

Expenses incurred by a company when it is struggling to meet its financial obligations, which may include bankruptcy costs, restructuring costs, and inefficiencies.

Financial Leverage

Leveraging borrowed capital to enhance the expected returns of an investment, thereby also magnifying the potential for loss.

Homemade Leverage

A strategy where investors adjust their financial leverage individually rather than relying on the company's capital structure, often through borrowing or lending funds personally.

Target Ratio

A specific goal for a financial metric that a company aims to achieve, often related to financial health or performance ratios.