Other things equal, a firm's sustainable growth rate could increase as a result of:

Question

Quizplus · Accepted Answer

Increasing the plowback ratio, or the percentage of earnings that a firm reinvests in the business rather than paying out as dividends, would result in more funds being available for investment and potentially increasing the firm's sustainable growth rate.

B) Increasing the payout ratio, or the percentage of earnings that a firm pays out as dividends, would result in less funds being reinvested in the business and potentially decreasing the firm's sustainable growth rate.

C) Decreasing the return on equity, or the amount of profit a company generates relative to its shareholders' equity, would decrease the firm's ability to generate earnings and potentially decrease the sustainable growth rate.

D) Increasing total assets alone would not necessarily lead to an increase in sustainable growth rate, as it depends on how effectively those assets are utilized and how they impact earnings and reinvestment opportunities.

Other Things Equal, a Firm's Sustainable Growth Rate Could Increase