What Is the Maximum Internal Growth Rate for a Firm

question 11

Multiple Choice

What is the maximum internal growth rate for a firm reporting net income of $500,000,a dividend payout ratio of 40%,and total assets of $10 million?

• A) 2%
• B) 3%
• C) 5%
• D) 6%

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Definitions:

Equity Capital

Funds raised by a company in exchange for a share of ownership in the company.

Dividend Payout Ratio

The fraction of net earnings a firm pays to its shareholders as dividends, usually expressed as a percentage.

R&D

Research and Development (R&D) refers to the activities companies undertake to innovate and introduce new products and services.

Investment Opportunities

Prospects or options available for investors to put their money into securities, assets, or projects expected to yield a return over time.