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Multiple Choice Quiz
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1

An increase in which of the following will cause a firm's sustainable growth rate to increase, all else equal?

I. profit margin
II. total asset turnover
III. debt-equity ratio
IV. retention ratio

A)I and II only
B)II and III only
C)II, III, and IV only
D)I, II, and III only
E)I, II, III, and IV
2

A firm has a profit margin of 9 percent, a dividend payout ratio of 30 percent, sales of $465,000, and total assets of $380,000. What is the internal growth rate?
A)2.8 percent
B)3.6 percent
C)5.1 percent
D)7.5 percent
E)8.4 percent
3

Moore Money, Inc., has a profit margin of 6 percent and a retention ratio of 70 percent. Sales are $52,000 and total assets are $60,000. The company maintains a debt to asset ratio of 20 percent. What is the firm's sustainable growth rate?
A)2.5 percent
B)4.8 percent
C)7.0 percent
D)9.3 percent
E)12.2 percent
4

A firm has net income of $45,000, dividends of $15,000, assets of $920,000, and a debt-equity ratio of .80. What is the sustainable growth rate?
A)1.5 percent
B)4.0 percent
C)5.6 percent
D)6.2 percent
E)8.9 percent
5

Assume a firm has sales of $897,000 on assets totaling $736,000. Net income is $54,000 and dividends paid are $24,000. What is the sustainable growth rate if the equity has a value of $410,000?
A)7.9 percent
B)8.8 percent
C)9.4 percent
D)10.6 percent
E)12.9 percent
6

A firm has net income of $258,000, total assets of $3.5 million, and total liabilities of $1.8 million. What is the internal growth rate assuming dividends paid total $125,000?
A)1.1 percent
B)2.5 percent
C)4.0 percent
D)8.3 percent
E)9.1 percent
7

A firm has current assets of $12,000, net fixed assets of $36,000, accounts payable of $9,000, long-term debt of $11,000, equity of $28,000, sales of $56,000, costs of $42,000, and a tax rate of 34 percent. Assume costs and assets increase at the same rate as sales. Also assume 40 percent of net income is paid out in dividends. What is the maximum growth rate achievable assuming no external financing is available?
A)10.3 percent
B)11.9 percent
C)12.2 percent
D)13.1 percent
E)14.7 percent
8

A firm has total assets of $269,000, total debt of $127,000, sales of $312,000, costs of $282,000, and a tax rate of 35 percent. Assume costs and assets increase at the same rate as sales. Also assume that 40 percent of net income is retained. The current debt-equity ratio is considered optimal and no new equity sales are possible. What is the maximum rate of growth given this information?
A)3.9 percent
B)4.3 percent
C)5.8 percent
D)6.2 percent
E)6.5 percent
9

Which of the following are characteristics of the sustainable growth rate?

I. no external financing of any kind
II. external debt financing
III. decreasing debt-equity ratio
IV. constant debt-equity ratio

A)I only
B)I and III only
C)I and IV only
D)II and III only
E)II and IV only
10

Which one of the following statements is correct given a firm which utilizes debt financing?
A)The sustainable growth rate assumes that a firm increases both its external debt and its external equity financing.
B)The internal growth rate is higher than the sustainable growth rate.
C)The internal growth rate rises as the dividend payout ratio rises.
D)The internal growth rate is based on the return on equity.
E)The internal growth rate is the maximum rate at which a firm can grow without obtaining additional external financing.





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