Question

2.8 Mia, Inc. has a 19 percent ROA and a 20 percent payout ratio. a. (5 points) What is its internal growth rate? b. (5 points) What is the sustainable growth rate of Phil, Inc. if it has an ROE of 23%? 2.9 Brian, Inc. has total assets of $8,000,000 and a total asset turnover of 2.8 times. If return on assets is 12%, what is the profit margin for Brian, Inc.? 2.10 For the most recent year, Shirlee, Inc. has sales of $400,000, cost of goods sold of $93,000, depreciation expense of $47,000, and additions to retained earnings of $61,420. The firm currently has 20,000 shares outstanding and the year's dividends were $1.50 per share. Assuming a 34% income tax rate, what was the times interest earned ratio?

Answer 1

2.8

a.

Internal growth rate is calculated below:

Internal growth rate = (1 - Payout ratio) ROA 1- (1 - Payout ratio) ROA

Internal growth rate = (1 -0.20) x 0.19 1- (1 -0.20) x 0.19

Internal growth rate = 0.1792

Internal growth rate is 17.92%.

b.

Sustainable growth rate is calculated below:

Sustainable growth rate = (1 - Payout ratio) ROE 1-(1 - Payout ratio) x ROE

Sustainable growth rate = (1 -0.20) x 0.23 1- (1 -0.20) x 0.23

Sustainable growth rate = 0.2255

Sustainable growth rate is 22.55%.