Which one of the following statements is correct for a firm already using debt f

Question

Which one of the following statements is correct for a firm already using debt financing? A. The internal growth rate is the expected rate at which a firm can grow without obtaining additional external financing. B. The sustainable growth rate assumes that a firm increases equity from retained earnings but does not take on any additional dollars of debt. C. The internal growth rate is higher than the sustainable growth rate. D. The internal growth rate is based only on the return on equity. E. The internal growth rate rises as the dividend payout ratio rises

Explanation / Answer

The following statement is correct

A. The internal growth rate is the expected rate at which a firm can grow without obtaining additional external financing.

Internal growth as the name suggests refers to utilising the funds from within the company i.e. from retained earnings and not taking the help of external financing.

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