Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of 40 percent. The firm does not want to increase its equity financing but are willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can grow is equal to:

A) 40 percent of the internal rate of growth.
B) 60 percent of the internal rate of growth.
C) The internal rate of growth.
D) The sustainable rate of growth.
E) 60 percent of the sustainable rate of growth.

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Emily Infante · Accepted Answer

Final Answer : D, Explanation :  The sustainable rate of growth is the maximum rate at which a company can grow its earnings, dividends, and sales without increasing its debt or issuing new equity, assuming it maintains its current dividend payout ratio and debt-equity ratio. Since Marcie's Mercantile wants to maintain its current dividend policy and debt-equity ratio without increasing equity financing, the correct answer is the sustainable rate of growth.

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