- Sustainable growth is growth that can be achieved by:
- retaining some earnings
- keeping the capital structure (debt to equity) constant
- The sustainable growth rate is the rate of dividend and earnings growth that can be sustained for a given return on equity assuming that:
- additional debt capital may be raised
- keeping the capital structure constant
(Question)
How should sustainable growth be described?
The sustainable growth rate is the rate of dividend and earnings growth that can be sustained for a given return on equity, assuming that:
A. no additional external capital is raised.
B. additional debt capital may be raised, keeping the capital structure constant.
C. additional equity capital may be raised proportional to the amount of earnings retained.
Answer: B
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