The sustainable growth rate of a firm is best described as the:
A)minimum growth rate achievable assuming a 100 percent retention ratio.
B)minimum growth rate achievable if the firm maintains a constant equity multiplier.
C)maximum growth rate achievable excluding external financing of any kind.
D)maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio.
E)maximum growth rate achievable with unlimited debt financing.

Question

Quizplus · Accepted Answer

The sustainable growth rate of a firm is the maximum growth rate achievable without the need for external equity financing while maintaining a constant debt-equity ratio. This means that the firm is using retained earnings and debt to finance its growth, but is not issuing any new equity. Therefore, choice D, which specifies this definition, is the correct answer.

The Sustainable Growth Rate of a Firm Is Best Described