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If a firm is growing at its sustainable growth rate is now confronted with sales growing at a higher rate and? - jamaica1 - 05-04-2014 03:06 PM
profit margin declines, manager will force to cut the dividend to sustain the new growth rate
True or false
- James_AJ - 05-04-2014 03:10 PM
Marginal profit does decrease, but manager does not automatically cut just because it's growing uncontrollably. The firm grows only until the marginal revenue is zero; the "stop" point of growth isn't related to the growth rate, but the marginal revenue. So... either your question is not very professional or it is "false".
But you have the long answer. Probably not because sales growing at a higher rate doesn't necessarily mean they are past the point where marginal revenue is actually less than zero (in which they are losing money by making more of its products)
- Scott - 05-04-2014 03:15 PM
True!!