If a Firm Bases Its Growth Projection on the Rate

question 59

Multiple Choice

If a firm bases its growth projection on the rate of sustainable growth, and shows positive net income, then the:

• A)fixed assets will have to increase at the same rate, regardless of the current capacity level.
• B)number of common shares outstanding will increase at the same rate of growth.
• C)debt-equity ratio will have to increase.
• D)debt-equity ratio will remain constant while retained earnings increase.
• E)fixed assets, debt-equity ratio, and number of common shares outstanding will all increase.

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Definitions:

Working Capital

The gap between a firm's immediate assets and its short-term obligations, reflecting the funds available for daily operations.

Quick Ratio

A liquidity ratio that measures a company's ability to cover its short-term obligations with its most liquid assets.

Accrued Product Warranty Expense

A liability recognized on the balance sheet for potential future costs related to warranty claims on products sold.

Pension Plan

An arrangement for retirement that mandates contributions by an employer to a reserved fund aimed at providing for an employee's needs in the future.