Which one of the following will increase the sustainable rate of growth a corporation can achieve? avoidance of external equity financing increase in corporate tax rates reduction in the retention ratio decrease in the dividend payout ratio decrease in sales given a positive profit margin None of the options are correct.

decrease in the dividend payout ratio

Explanation:

Sustainable growth rate (SGR) is the maximum growth rate that a company can achieve without obtaining funding from external sources like by borrowing debt or issuing equity. This growth rate can be experienced through increase in sales. The formula for sustainable growth rate is as follows;

SGR = retention rate * return on equity

since retention rate = (1 - payout ratio)

If dividend payout ratio decreases, the retention rate will increase hence increasing the SGR.