Which one of the following will increase the maximum rate of growth a corporation can achieve?
A)avoidance of external equity financing
B)increase in corporate tax rates
C)reduction in the retention ratio
D)decrease in the dividend payout ratio
E)decrease in sales given a positive profit margin

Question

Quizplus · Accepted Answer

By decreasing the dividend payout ratio, the corporation will retain more earnings, which can be reinvested into the company to promote growth. This will increase the maximum rate of growth the corporation can achieve. Avoidance of external equity financing may limit the amount of funding available for growth. An increase in corporate tax rates may decrease profits, reducing the resources available for growth. Reduction in the retention ratio would decrease the amount of earnings retained for growth. A decrease in sales given a positive profit margin would lead to a reduction in profits, limiting resources available for growth.

Which One of the Following Will Increase the Maximum Rate