Question

Which of the following are assumptions of the self-supporting growth model? Check all that apply. The...

Which of the following are assumptions of the self-supporting growth model? Check all that apply.

The firm pays out a constant proportion of its earnings as dividends.

The firm uses all equity and no debt financing.

The firm must issue the same number of new common shares that it issued last year.

The firm will not issue any new common stock next year.

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Answer #1

Answer:- The following are assumptions of the self-supporting growth model:-

The firm will not issue any new common stock next year.

The firm pays out a constant proportion of its earnings as dividends

Note:-

  • Self-supporting growth model assumes that there is no new debt or equity being issued because of which the growth is self sustained.
  • It can be defined as maximum growth rate that a company can sustain without securing any additional funding which means without borrowing additional money or issuing new equity.
  • It assumes that firm has a given dividend payout policy and a fixed D/E ratio and the firm will not change the number of outstanding shares of stock.
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