Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Retained Earnings

Financial Accounting

12. Stockholders' Equity

Retained Earnings

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Multiple Choice

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:

Equal to the firm's net income

Equal to the return on equity (ROE)

100%

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Verified step by step guidance

Understand the concept of the internal growth rate: The internal growth rate represents the maximum growth rate a firm can achieve using only its retained earnings, without relying on external financing.

Recognize the impact of a 100% dividend payout ratio: If a firm has a 100% dividend payout ratio, it means that all of its net income is distributed to shareholders as dividends, leaving no retained earnings.

Connect retained earnings to growth: Retained earnings are essential for reinvestment in the business, which drives internal growth. Without retained earnings, the firm cannot reinvest in operations or assets to grow internally.

Analyze the relationship between payout ratio and growth rate: Since the firm is paying out all of its net income as dividends (100% payout ratio), there are no funds left for reinvestment, resulting in an internal growth rate of 0%.

Conclude that the internal growth rate is 0%: The firm's internal growth rate is 0% because it has no retained earnings to fuel growth, regardless of its net income or return on equity (ROE).