Asked by Chynna Hughes on Jun 11, 2024
Verified
All else constant, which one of the following will increase the internal growth rate?
A) An increase in fixed assets.
B) An increase in the dividend payout ratio.
C) An increase in the plowback ratio.
D) A decrease in net income.
E) An increase in total assets.
Internal Growth Rate
The maximum rate at which a firm can expand its operations without obtaining additional financing, driven by reinvestment of its earnings.
Plowback Ratio
A financial metric that measures the proportion of earnings retained by a company after dividends have been paid out to shareholders.
Dividend Payout
The fraction of a firm's earnings allocated to its shareholders through dividends.
- Investigate the nexus between demands for external financing, dividend actions, and enduring growth rates.
- Familiarize oneself with the key concepts of the sustainable growth rate and its implications for augmenting business without new equity contributions.
Verified Answer
NC
Nicolette CoriglianoJun 15, 2024
Final Answer :
C
Explanation :
An increase in the plowback ratio (retention ratio) increases the internal growth rate because it means more earnings are being reinvested back into the company, fueling its growth without needing external financing.
Learning Objectives
- Investigate the nexus between demands for external financing, dividend actions, and enduring growth rates.
- Familiarize oneself with the key concepts of the sustainable growth rate and its implications for augmenting business without new equity contributions.