The two cases (slide 1 versus slide 2) demonstrates that at the same 20% growth (and the
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Question:
The two cases (slide 1 versus slide 2) demonstrates that at the same 20% growth (and the same assumption that Debt-Equity Ratios stay constant year to year) into the next year for both cases, slide 2 does not need EFN (rather, slide 2 could afford to pay out some dividend in the next year), but slide 3 does need EFN.
Please explain what fundamentally gives rise to the difference? Try to relate your explanation to the Sustainable Growth Rate (as well as the SGR formula given in the textbook), ROE and other concepts if needed. Show algebra if it helps.
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