| Question 1 1 / 1 pts |
| A firm that grows too rapidly risks requiring too LITTLE financial leverage. False |
| Question 2 1 / 1 pts |
| Dynamo Engines Inc., has an ROA of 10%, a profit margin of 6%, an assets to equity ratio of 1.30 and a retention ratio of 0.70. What is the firm’s sustainable growth rate? |
9.1%
7%
0.55%
4.20%
| Question 3 1 / 1 pts |
| If sales growth is SLOWER than the sustainable growth rate then the ROE is also lower. True |
| Question 4 1 / 1 pts |
| Knowledge about the sustainable growth rate is important to all but one of the following groups or individuals.
Knowledge about sustainable growth rate is important to all |
The CEO
The CFO
Managers involved in a budgeting process
| Question 5 1 / 1 pts |
| Which of following is NOT a variable in the equation for sustainable growth? current ratio |
profit margin
asset turnover ratio
leverage ratio
| Question 6 1 / 1 pts |
| A firm that is growing more slowly than its sustainable growth rate may face which of the following scenarios if it generates excess cash rather than make greater investments in its own business? All are realistic scenarios. |
Use the excess cash to acquire other businesses.
Use the excess cash to increase dividends.
Do nothing and become “cash rich.”
| Question 7 1 / 1 pts |
| If a firm is trying to grow more rapidly, which of the following identifies a non financially-related course of action? |
increase the retention ratio
reduce dividends
increase asset turnover
increase the debt to equity ratio
| Question 8 1 / 1 pts |
| It is not unusual for a successful firm to temporarily grow more rapidly than its sustainable growth rate if the firm is in the ________ phase of business. start-up |
swan song
middle
cash cow
| Question 9 1 / 1 pts |
| Gremlin Media Inc. has realized tremendous growth in recent years. Last year the firm realized an ROE of 41.16%. If the firm was in a 40% marginal tax bracket, had an asset turnover ratio of 2.1, a profit margin of 14%, and a leverage ratio of 2, what was the firm’s retention ratio? |
0.70
1.00
0.5
There is not enough information to answer this question.
| Question 10 1 / 1 pts |
| Gaston Grooming Inc., has a sustainable growth rate of 17.28%. If the retention ratio is .60, the leverage ratio is 1.2 and the asset turnover ratio is 1.6, what was the firm’s profit margin? 15.0% |
13.6%
12.1%
11.4%
| Question 11 1 / 1 pts |
| Eagle Enterprises Inc., has an asset turnover of 1.1, a financial leverage ratio of 1.67, a profit margin of 12% and a dividend payout ratio of 25%. What is the firm’s sustainable growth rate? 16.53% |
29.39%
14.07%
5.51%
| Question 12 1 / 1 pts |
| The ________ is the maximum a firm can grow with internally generated equity and new borrowing sufficient to maintain the current long-term-debt to equity ratio. sustainable growth rate |
internal growth rate
return on assets
return on equity