In the context of financial planning models, the planned growth rate is g, the internal growth rate is gi, and the sustainable growth rate is g*.

Select the correct alternative:

Question

In the context of financial planning models, the planned growth rate is g, the internal growth rate is gi, and the sustainable growth rate is g*.

Select the correct alternative:

BlackTom AI · Accepted Answer

The question presents a scenario in financial planning models with three growth rates: planned growth g, internal growth gi, and sustainable growth g*. We are asked to evaluate the implications for the firm’s book leverage under different conditions of how EFN (external financing needed) is covered. Option 1: 'If g>g* and the firm will cover its EFN with additional borrowing and equity issuance, then the firm's book leverage will unambiguously increase in future years.' In this case, covering EFN with both debt and equity means the balance sheet is financed by raising external funds, but the mix includes equity; leverage (debt-to-assets) may not increase unambiguously because equity issuance can offset debt growth, depending on the relative sizes. Since the question uses the inequality g>g*, sustainable growth is exceeded, which typically pressures internal funds; however, the explicit inclusion of equity issuance means leverage could rise or stay the same unless debt grows faster than assets or unless debt is issued at a higher rate than assets grow. Therefore this statement is not unambiguously true. Option 2: 'If 0

COMM_V 370 101-108 2025W1 COMM 370 101 - 108 Midterm - Thursday, November 6, 2025 - Requires Respondus LockDown Browser

In the context of financial planning models, the planned growth rate is g, the internal growth rate is gi, and the sustainable growth rate is g*. Select the correct alternative:

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