Check my work Last year, Lakesha's Lounge Furniture Corporation had an ROA of 7.5 percent and...

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Question

Answer 1

Answer #1

Retention ratio = 1 - dividend payout ratio

Retention ratio = 1 - 0.25

Retention ratio = 0.75

Internal growth rate = ROA * retention ratio / [1 - ROA * retention ratio]

Internal growth rate = 0.075 * 0.75 / [1 - (0.075 * 0.75)]

Internal growth rate = 0.05625 / (0.94375)

Internal growth rate = 0.0596

or Internal growth rate = 5.96%

Answer 2

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