One problem with the internal growth rate measure is that it relies upon the assumption that all growth is financed by:

A) retained earnings
B) new equity issues
C) debt
D) asset sales

Question

One problem with the internal growth rate measure is that it relies upon the assumption that all growth is financed by:

A) retained earnings
B) new equity issues
C) debt
D) asset sales

Quizplus · Accepted Answer

The problem with the IGR method is that it relies upon the assumption that all growth is financed by retained earnings.In reality,this assumption is unlikely to be met.If the firm grows at the IGR with the assumed constant dollar amount of debt,then retained earnings will build (given a positive IGR)and the D/E ratio will decline.

One Problem with the Internal Growth Rate Measure Is That