Answer: 4.86% ⇒ The maximum growth rate for the firm.
Explanation:
Given that,
net income = $32,600
total equity = $294,000
total assets = $503,000
25 percent dividend payout ratio
So,
Internal growth rate of the firm = [tex]\frac{Net\ Income}{Total\ assets}[/tex]
= [tex]\frac{32600}{503000}[/tex]
= 6.48%
Now, for calculating growth rate:
= Retention Ratio × Internal rate of return
= (1 - Dividend payout ratio) × Internal rate of return
= (1 - 25%) × 6.48%
= 0.0486
= 4.86% ⇒ The maximum growth rate for the firm.
