Question
Success Corporation has $ 140 million in equity and $ 60 million in debt and anticipates $ 28 million in net profit for this year.
Success Corporation has $ 140 million in equity and $ 60 million in debt and anticipates $ 28 million in net profit for this year. Today, you pay 25% of your net profit by dividend. The company is analyzing a possible change in the profit distribution policy: an increase in dividends to 35% of net profit.
a) Determine how this change will affect the company's internal and sustainable growth rates?
b) What is the difference between the internal growth rate and the sustainable growth rate?
c) If the company grows faster than its sustainable growth rate, does this growth reduce the value of the company?
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