Question

Norma FIN 2021 Quz 2A CH 1. If a company seeks to maximize firm value, it should never grow at a rate above its sustainable growth rate. True Faise 2. The only way a company can grow at a rate above its current sustainable growth rate is by increasing leverage. True False 3 In recent years, U.S. companies as a whole have repurchased more equity than they have issued. True False 4. Share repurchases usually decrease earnings per share. True False 5. Issue costs of equity are high relative to those of debt. True False 6. One way to manage an actual growth rate above a sustainabie growth rate is to decrease prices True False

Answer 1

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1. FALSE

A company should grow at a maximum rate in order to maximise its market value.

2. FALSE

Increasing leverage can be fatal if it is increased more than a certain limit. Hence, its not a way for excellent growth rate.

Moreover, there are many ways to grow above sustainable growth rate like effective and efficient management.

3. TRUE

U.S. Companies has repurchased the equity at the explosive rate in 2018 with high concentration in Feb 2018 and in IT Companies.

4. FALSE

Share repurchase usually increase EPS as it decreases the number of outstanding shares.

5. TRUE

Issue of shares usually involve a string of costs and steps including issue of prospectus, underwriting, listing etc while debt don't usually involve such costs and steps.

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