Bio-Plasma Corp. is growing at 30 percent per year. It is all-equity-financed and has total assets of

Question:

Bio-Plasma Corp. is growing at 30 percent per year. It is all-equity-financed and has total assets of $1 million. Its return on equity is 20 percent. Its plowback ratio is 40 percent.

a. What is the internal growth rate?

b. What is the firm’s need for external financing this year?

c. By how much would the firm increase its internal growth rate if it reduced its payout rate to zero?

d. By how much would such a move reduce the need for external financing? What do you conclude about the relationship between dividend policy and requirements for external financing?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Internal Growth Rate
"An internal growth rate (IGR) is the highest level of growth achievable for a business without obtaining outside financing, and a firm's maximum internal growth rate is the level of business operations that can continue to fund and grow the...