Donovan Brothers,Inc.would like to increase its internal rate of growth.Decreasing which one of the following will help the firm achieve its goal?
A)Return on assets
B)Net income
C)Retention ratio
D)Dividend payout ratio
E)Return on equity

Question

Quizplus · Accepted Answer

The dividend payout ratio is the proportion of net income that is paid out as dividends. Therefore, decreasing the dividend payout ratio will increase the amount of net income that is retained by the firm, which increases the retention ratio. An increase in the retention ratio will increase the amount of funds available for reinvestment in the firm, thus increasing the internal rate of growth.