Final answer:
The sustainable growth rate and internal growth rate are equivalent when a firm retains all its earnings, meaning the retention ratio is at its maximum value of 1.
Step-by-step explanation:
The student asked when the sustainable growth rate will be equivalent to the internal growth rate. This scenario occurs when a company neither borrows additional funds nor returns funds to owners, which means the firm is financing its growth exclusively through its retained earnings. Therefore, the correct answer is c. the retention ratio is equal to 1, implying that the firm is retaining all its earnings instead of paying out any portion as dividends. In this case, the plowback ratio or retention ratio, which represents the proportion of earnings kept back in the business as retained earnings, is at its maximum value of 1. The internal growth rate and sustainable growth rate converge under this condition because the company's growth is entirely sustained by its reinvested profits, without the influence of external debt or equity financing.