The sustainable growth rate:
A) assumes there is no external financing of any kind.
B) assumes no additional long-term debt is available.
C) assumes the debt-equity ratio is constant.
D) assumes the debt-equity ratio is 1.0.
E) assumes all income is retained by the firm.
F) None of the above.

Question

Quizplus · Accepted Answer

The sustainable growth rate assumes that the debt-equity ratio is constant. This means that any growth in the company's earnings is funded by retained earnings rather than by taking on additional debt or issuing new equity. However, it does not assume that there is no external financing or that all income is retained by the firm.

The Sustainable Growth Rate