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83. A) What are the assumptions that underlie the internal growth rate and B) what are the implications of this rate? 85. Smith & Daughters is getting ready to compile pro forma statements for the next few years. How can the managers establish a reasonable range of growth rates that they should consider during this planning process?
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83)

The assumptions are most of the parameters increase proportional to sales. The variable and net working capital increase in proportional to sales. Fixed assets also increase in proportional to sales and upto the maximum production capacity. Dividend payout ratio will remain constant. There is no external financing option available for this. The implications are firms growth rate is equal to the internal growth rate as long as the financing is remaining constant. The internal growth rate is nothing but the maximum growth rate how firms uses internally generated funds for its growth

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