Which of the Following Statements Is CORRECT

question 37

Multiple Choice

Which of the following statements is CORRECT?

• A) If a firm's assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm's AFN to be negative.
• B) If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm's actual AFN must, mathematically, exceed the previously calculated AFN.
• C) Higher sales usually require higher asset levels, and this leads to what we call AFN.However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio.
• D) Dividend policy does not affect the requirement for external funds based on the AFN equation.
• E) The sustainable growth rate is the maximum achievable growth rate without the firm having to raise external funds.In other words, it is the growth rate at which the firm's AFN equals zero.

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Definitions:

Form 1040

The official form provided by the Internal Revenue Service (IRS) which is utilized by individuals to submit their yearly income tax returns.

Tax-Exempt Dividends

Dividends that are paid by investments in municipal bonds or certain mutual funds which are not subject to federal income tax.

Corporate Dividends

Payments made by a corporation to its shareholders, usually derived from the company's profits.

Taxable

Pertaining to income, transactions, or assets that are subject to tax by governmental authorities.