Afirm has adopted a policy whereby it will not seek any additional external financing. given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio

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 =

=

= 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.

um sure