A firm expects growth next year to be 10%. Its sustainable growth rate is 12%. Which of the following is true?
A)The firm will have excess cash to increase dividends, pay back debt, or repurchase equity.
B)The firm may be able to keep its debt-to-equity ratio the same by reducing dividends (assuming they are projected to be high enough).
C)The firm will need to raise additional debt such that its debt-to-equity ratio will increase.
D)The firm will need to raise additional capital through a stock issue.

Question

Quizplus · Accepted Answer

The firm's expected growth is less than its sustainable growth rate, indicating it can finance its growth internally and may have excess cash.

A Firm Expects Growth Next Year to Be 10