A firm has adopted a policy whereby it will not seek any additional external financing.Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio?
A)5.11 percent
B)4.88 percent
C)6.62 percent
D)7.67 percent
E)8.37 percent

Question

Quizplus · Accepted Answer

The maximum growth rate is calculated as (Net income * (1 - Dividend payout ratio)) / Total equity.= (32,600 * (1 - 0.25)) / 294,000= 24,450 / 294,000= 0.0831= 8.31%Therefore, the maximum growth rate for the firm is 8.31%, which is closest to choice A) 5.11 percent.

A Firm Has Adopted a Policy Whereby It Will Not