The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?
A)no new external financing of any kind
B)no new debt but additional external equity equal to the increase in retained earnings
C)new debt and external equity in equal proportions
D)new debt and external equity,provided the debt-equity ratio remains constant
E)no new equity and a constant debt-equity ratio

Question

Quizplus · Accepted Answer

The sustainable growth rate is defined as the maximum rate at which a firm can grow without any new external financing, meaning that the firm can only use its retained earnings to finance its growth. Therefore, the choice that indicates "no new equity" is the most appropriate. The debt-equity ratio is not relevant in this definition of sustainable growth rate, so choices A, B, C, and D are incorrect.

The Sustainable Growth Rate Is Defined as the Maximum Rate