Question

The most recent financial statements for Minnie's Manufacturing Co. are shown below: Income Statement Balance Sheet Sales 91,200 Current $32,000 Debt $ 42,000 assets Costs 66,150 Fixed assets 93,200 Equity 83,200 Taxable income $25,050 Total $125,200 Total $125.200 Tax 5,261 Net Income $19,789 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. No external financing is possible What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal growth rate

Answer 1

Answer:

ROA = Net Income / Total Assets
ROA = $19,789 / $125,200
ROA = 0.1581 or 15.81%

B = 1 – Dividend Payout ratio
b = 1 – 0.35
b = 0.65

Internal Growth rate = (ROA * b)/ [1 – (ROA*b)]
Internal Growth rate = (0.1581 * 0.65) / [1 – (0.1581 *0.65)]
Internal Growth Rate = 0.1028 / [1 – 0.1028]
Internal Growth rate = 0.1028 / 0.8972
Internal Growth Rate = 0.1146 or 11.46%