Question

Wildhorse Supply Company’s financial statements for the most recent fiscal year are shown below. The company...

Wildhorse Supply Company’s financial statements for the most recent fiscal year are shown below. The company management projects that sales will increase by 14 percent next year. Assume that all costs and assets increase directly with sales. The company has a constant 29 percent dividend payout ratio and has no plans to issue new equity. Any financing needed will be raised through the sale of long-term debt. Using the forecasted income and dividend information for Wildhorse Supply, find the internal growth rate for Wildhorse. (Round intermediate calculation to the nearest whole dollar, e.g. 5,275 and final answer to 2 decimal places, e.g. 15.25%.)

Wildhorse Supply Company
Income Statement and Balance Sheet
Income Statement Balance Sheet

Net sales

$1,768,121 Assets

Costs

1,116,487

Current Assets

$280,754

EBT

$651,634

Net Fixed Assets

713,655

Taxes (35%)

228,072

Total assets

$994,409

Net Income

$423,562
Liabilities and Equity:

Current Liabilities

$167,326

Long-term debt

319,456

Common Stock

200,000

Retained Earnings

307,627

Total liabilities & equity

$994,409
Internal growth rate enter the internal growth rate in percentages rounded to 2 decimal places %
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Answer #1

Internal growth rate = ROA * Retention Rate

= [Net Income / Total Assets] * [1 - Payout Ratio]

= [$423,562 / $994,409] * [1 - 0.29]

= 0.4259 * 0.71 = 0.3024, or 30.24%

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