The estimate of how quickly a firm may grow by maintaining a constant mix of debt and equity is called:
A) the retention growth rate
B) dividend growth rate
C) sustainable growth rate
D) the internal growth rate

Question

Quizplus · Accepted Answer

The sustainable growth rate is the estimate of how quickly a firm may grow by maintaining a constant mix of debt and equity. This rate takes into account the firm's earnings retention rate, return on equity, and the amount of debt financing used. It is generally considered a more realistic estimate of growth potential than the internal growth rate, which assumes no increase in debt financing. The dividend growth rate and retention growth rate are not necessarily reflective of a firm's overall growth potential, as they only measure growth in dividends or in earnings retained for reinvestment.

The Estimate of How Quickly a Firm May Grow by Maintaining