A Firm Expects Growth Next Year to Be 10

question 68

Multiple Choice

A firm expects growth next year to be 10%. Its sustainable growth rate is 12%. Which of the following is true?

• A) The firm will need to raise additional debt such that its debt to equity ratio will increase.
• B) The firm may be able to keep its debt to equity ratio the same by reducing dividends (assuming they are projected to be high enough).
• C) The firm will need to raise additional capital through a stock issue.
• D) The firm will have excess cash to increase dividends, pay back debt, or repurchase equity.

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