Milano Corporation has experienced growth of 20% for each of the last 5 years.Over this 5-year period,Milano's return on equity has never exceeded 15%,its profit margin has held steady at 5%,and its total asset turnover has not changed.Over the 5-year period,Milano paid no dividends and issued no new equity.Based on this information,which of the following can you most likely infer about Milano's performance over the past 5 years?
A) Milano's leverage has decreased.
B) Milano's leverage has remained constant.
C) Milano's leverage has increased.
D) None of the above.

Question

Quizplus · Accepted Answer

Note first that g > g* because g = 20% and g*<15%.
With g > g* one of PRAT must increase.P has held steady at 5%,R has remained at 100%,A has not changed.Thus T (leverage)must have increased.

Milano Corporation Has Experienced Growth of 20% for Each of the Last