The maximum rate of growth a corporation can achieve can be increased by:
A) avoiding new external equity financing.
B) increasing the corporate tax rate.
C) increasing the retention ratio.
D) increasing the dividend payout ratio.
E) increasing the sales forecast.

Question

Quizplus · Accepted Answer

The retention ratio is the amount of earnings that a company chooses to keep rather than paying out as dividends. By increasing the retention ratio, a corporation can reinvest more money back into the company, which can lead to greater growth opportunities. Avoiding external equity financing may limit a corporation's ability to raise funds, increasing the corporate tax rate may detour potential investors, increasing the dividend payout ratio may limit the amount of money available for growth opportunities, and increasing the sales forecast does not necessarily guarantee a higher rate of growth.

The Maximum Rate of Growth a Corporation Can Achieve Can