Final answer:
The maximum rate of growth a corporation can achieve can be increased by increasing the retention ratio through the reinvestment of profits. This strategy can lead to sustainable growth by improving infrastructure, hiring more labor, or buying new technology.
Step-by-step explanation:
The maximum rate of growth a corporation can achieve can be increased by increasing the retention ratio. This involves reinvesting a portion of its profits back into the company, which can be used for improving infrastructure, hiring labor, or purchasing new technology. When a company reinvests its profits, it can potentially generate additional sales and increase its cash flow in subsequent sales periods. This strategy of reinvestment can lead to sustainable growth as long as the company remains profitable and the reinvested cash flow exceeds the depreciation on its equipment.
On the other hand, increasing the dividend payout ratio would actually reduce the amount of money available for reinvestment, thus slowing potential growth. Avoiding new external equity financing means not issuing new stock, which can prevent dilution of ownership but also limits the capital available for growth. A higher corporate tax rate would reduce the after-tax profit available for reinvestment. Lastly, while increasing the sales forecast is a goal, it is not a direct method for funding growth; forecasts themselves do not generate capital.