The sustainable growth rate of a firm is best described as the minimum growth rate achievable if the firm does not pay out any cash dividends minimum growth rate achievable if the firm maintains a constant equity multiplier. maximum growth rate achievable without external financing of any kind. O maximum growth rate achievable without using any external equity financing while maintaining a constant debt-equity ra

The sustainable growth rate of a firm is best described as the minimum growth rate achievable if the firm does not pay out any cash dividends minimum growth rate achievable if the firm maintains a constant equity multiplier. maximum growth rate achievable without external financing of any kind. O maximum growth rate achievable without using any external equity financing while maintaining a constant debt-equity ra

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 6QE

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Similar questions

hich of the following best describes the sustainable growth rate? The minimum growth rate that can be achieved without raising external funds The maximum growth rate that can be achieved without raising external funds The minimum growth rate that can be achieved while maintaining the firm's dividend policy The maximum growth rate that can be achieved while maintaining the firm's dividend policy
Which of the following is the correct definition for the sustainable growth rate? a. The maximum possible growth rate for a firm that issues no new equity and maintains its capital structure. b. The maximum possible growth rate for a firm that raises no external financing c. The maximum possible growth rate for a firm can sustain d. The maximum possible growth rate for a firm that issues no external financing and maintains a constant debt ratio. Please explain why the selections are true or fallse.
Which of the following statements is not correct? The higher the sales growth rate g is, the larger AFN will be—other things held constant. The higher the capital intensity ratio, the larger AFN will be—other things held constant. The higher the firm’s spontaneous liabilities, the smaller AFN will be—other things held constant. The higher the payout ratio, the smaller AFN will be if other things held constant.
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A. External growth rate B. Internal growth rate C. DuPont rate D. Cash flow rate
Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mix
Which one of the following statements related to the Security Market Line approach to equity valuation is correct? Assume the firm includes debt in its capital structure. Group of answer choices This model considers a firm's rate of growth. The model will never produce the same cost of equity as the dividend growth model. The model is dependent upon a reliable estimate of the market risk premium. This approach generally produces a cost of equity that equals the firm's overall cost of capital. The model applies only to non-dividend-paying firms.
Which statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the above
Indicate whether the following statements are true or false. If the statementis false, explain why.f. If a firm follows a residual dividend policy then, holding all else constant, its dividend payout will tend to rise whenever the firm’s investment opportunities improve.
WHICH OF THE FOLLOWING STATEMENTS IS MOST CORRECT? A. IF A FIRM'S EXPECTED BASIC EARNING POWER (BEP) IS CONSTANT FOR ALL ITS ASSETS AND EXCEES INTEREST RATE ON ITS DEBT, THEN ADDING ASSETS FINANCING THEM WITH DEBT WILL RAISE THE FIRM'S EXPECTED RATE OF RETURN ON COMMON EQUITY (ROE)? B. THE HIGHER ITS TAX RATE, THE LOWER A FIRM'S BEP RATIO WILL BE, OTHER THINGS HELD CONSTANT. C. THE HIGHER THE INTEREST RATE ON ITS DEBT, THE LOWER THE FIRM'S BEP RATIO WILL BE, OTHER THINGS HELD CONSTANT. D. THE HIGHER ITS DEBT RATIO, THE LOWER THE FIRM'S BEP RATIO WILL BE, OTHER THINGS HELD CONSTANT. E. STATEMENT A IS FALSE, BUT B, C AND D ARE ALL TRUE.
Which of the following statement is true? Select one: O A. Increase in the operating net working capital will increase the free cash flow to equity O B. To issue new debt will increase the free cash flow to equity O C. To pay off the loan will increase the free cash flow to equity D. The increase in the capital expenditure will increase the free cash flow to equity The constant dividend growth model requires which of the following conditions? Select one: O A. g r O C. g is the lower than, or equal to, the growth rate of the economy O D. A and C O E. All of the above.
This question is related to Chapter 18 of Berk & Demarzo "Capital Budgeting and Valuation with Leverage". How do the calculations of the firm value using the APV method differ between the following assumptions? The growth rate of the EBIT and the debt-equity ratio will be constant The growth rate of the EBIT and the interest coverage ratio will be constant. The firm selects the optimal interest coverage ratio and maintains this ratio constant forever (corporate taxes are the only imperfection) Are the values that result different or equal?
Under normal circumstances, the weighted average cost of capital is used as the firm's required rate of return because a. as long as the firm's investments earn returns greater than the cost of capital, the value of the firm will increase b. it is comparable to the average of all the interest rates on debt that currently prevail in the financial markets c. returns below the cost of capital will cover all the fixed costs associated with capital and provide excess returns to the firm's stockholders