ROA(End) = Net Income / Ending Total Assets = $41,000 / $350,000 = 0.1171, or 11.71%
Addition to retained earnings = NI - Dividends paid = $41,000 - $5,800 = $35,200
Beginning assets = Ending assets - Addition to retained earnings = $350,000 - $35,200 = $314,800
ROA(Begin) = Net Income / Beginning Total Assets = $41,000 / $314,800 = 0.1302, or 13.02%
Plowback ratio = Addition to retained earnings/NI = $35,200 / $41,000 = 0.8585 or 85.85%
a). Internal growth rate = (ROA * b) / [1 - (ROA * b)]
= [0.1171(0.8585)] / [1 - {0.1171(0.8585)] = 0.1006 / 0.8994 = 0.1118, or 11.18%
b). Using the formula ROA * b, and beginning of period assets:
Internal growth rate = 0.1302 * 0.8585 = 0.1118, or 11.18%
c). Using the formula ROA * b, and end of period assets:
Internal growth rate = 0.1171 * 0.8585 = 0.1006, or 10.06%
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