Sustainable growth As a firm grows, it must support increases in revenue with new investments in assets. The self-suppor
Posted: Sun Jul 03, 2022 12:52 pm
Sustainable growth
As a firm grows, it must support increases in revenue with newinvestments in assets. The self-supporting growth model helps afirm assess how rapidly it can grow, while maintaining a balancebetween its cash outflows (increases in noncash assets) and inflows(funds resulting from increases in liabilities or equity).
Consider this case:
Blue Elk Manufacturing has no debt in its capital structure andhas $200 million in assets. Its sales revenues last year were $100million with a net income of $5 million. The company distributed$1.35 million as dividends to its shareholders last year.
What is the firm’s self-supporting, growth rate? (Note: Do notround your intermediate calculations.)
a. 1.86%
b. 0.79%
c. 3.28%
d. 0.68%
Which of the following are assumptions of the self-supportinggrowth model? Check all that apply.
a. The firm maintains a constant ratio of liabilities toequity.
b. Common stock is the firm’s only form of equity.
c. The firm pays no dividends.
d. The firm’s liabilities and equity must increase at the samerate.
As a firm grows, it must support increases in revenue with newinvestments in assets. The self-supporting growth model helps afirm assess how rapidly it can grow, while maintaining a balancebetween its cash outflows (increases in noncash assets) and inflows(funds resulting from increases in liabilities or equity).
Consider this case:
Blue Elk Manufacturing has no debt in its capital structure andhas $200 million in assets. Its sales revenues last year were $100million with a net income of $5 million. The company distributed$1.35 million as dividends to its shareholders last year.
What is the firm’s self-supporting, growth rate? (Note: Do notround your intermediate calculations.)
a. 1.86%
b. 0.79%
c. 3.28%
d. 0.68%
Which of the following are assumptions of the self-supportinggrowth model? Check all that apply.
a. The firm maintains a constant ratio of liabilities toequity.
b. Common stock is the firm’s only form of equity.
c. The firm pays no dividends.
d. The firm’s liabilities and equity must increase at the samerate.