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Go Go Industries is growing at 30 percent per year. It is all-equity financed and has total assets of $1 million. Its return on equity is 25 percent....

Go Go Industries is growing at 30 percent per year. It is all-equity financed and has total assets of $1 million. Its return on equity is 25 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 ratio 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?

This question was asked on Apr 26, 2010.

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