A Firm Has $20 Million in Equity and $10 Million

Multiple Choice

A firm has $20 million in equity and $10 million in debt.The firm forecasts that this year's net income will be $2.5 million.It currently pays dividends equal to 30% of its net income.If the firm decides to change its payout policy to 40% of net income,how would this change its internal growth rate?

A) Decreases by 0.83%
B) Decreases by 1%
C) No change
D) Increases by 0.83%
E) Increases by 1%