Question

The most recent financial statements for Bello Co. are shown here: Income Statement Sales Costs Taxable Balance Sheet n$12,020 Debt 16,660 14,100 Fixed assets 33,300 Equity 28,660 $20,500 Current assets 6,400 Tota $45,320 Total $45,320 income Taxes (21%) 1,344 Net income $5,056 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded 2 decimal places, e.g.,32.16.) Internal growth rate

Answer 1

Ans.	Internal growth rate   =   (ROA * Retention ratio) / [1 - (ROA * Retention ratio)]
		(0.112 * 0.70) / [1 - (0.112 * 0.70)]
		0.0784 / [1 - 0.0784]
		0.0784 / 0.9216
		0.085069444
		or   8.51%
	*Retention ratio   =   1 - Dividend Payout ratio
		1 - 0.30
		0.70
	*Return on assets (ROA)   = Net income / Total assets
		5056 / 45320
		0.112