Which one of the following will cause the sustainable growth rate to equal to internal growth rate?
A)dividend payout ratio greater than 1.0
B)debt-equity ratio of 1.0
C)retention ratio between 0.0 and 1.0
D)equity multiplier of 1.0
E)zero dividend payments

Question

Quizplus · Accepted Answer

The sustainable growth rate is equal to the internal growth rate when the firm has no debt. This is represented by an equity multiplier of 1.0, which means the total assets are equal to the total equity. By having no debt, the firm's growth is limited by the amount of retained earnings it can generate internally, which is also represented by the internal growth rate. Therefore, the equity multiplier of 1.0 will cause the sustainable growth rate to equal the internal growth rate.

Which One of the Following Will Cause the Sustainable Growth