Question

Using the information in the following table, calculate this company's $49,900 $395,900 $249,300 0% Net Income Beginning Total Assets Beginning Stockholders Equity Payout Ratio a. Internal growth rate. b. Sustainable growth rate. c. Sustainable growth rate if it pays out 45% of its net income as a dividend The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard depreciation practices during your career a. Internal growth rate. The intemal growth rate is % ( Round to one decimal place) b. Sustainable growth rate The sustainable growth rate is 9% (Round to one decimal place) c. Sustainable growth rate if it pays out 45 % of its net income as a dividend The sustainable growth rate, if it pays out 45% of its net income as a dividend, is % Round to one decimal place) Enter your answer in each of the answer boxes Type here to search

Answer 1

a)

Internal growth rate for the firm = retention ratio * ROA

retention ratio = 100% as payout is 0%

ROA = 49,900/395,900 = 12.6%

Internal growth rate = 12.6%

b)

Sustainable growth rate = Retention ratio * ROE = (49,900/249,300) = 20.01%

c)

Retention ratio = (1- dividend payout ratio) = 1- 45% = 55%

Sustainable growth rate = 0.55* (49,900/249,300) = 11%