ZYX Ltd. has sales of $1,000,000, retention ratio of 60%, equity multiplier of 2.5, dividends of $30,000, and equity of $312,500. What is the growth rate that the firm can achieve without outside financing?
Dividends = 1 - retention ratio
= 1- 60%
= 40%
Net Income = Dividend /Dividend Rate
= $ 30,000 / 40%
= $ 75,000
Growth rate = ROE * retention ratio
= (Net Income/ Equity) * retention ratio
= ( $ 75,000 / $ 312,500) * 60%
= 14.40%
Hence the correct answer is 14.40%
ZYX Ltd. has sales of $1,000,000, retention ratio of 60%, equity multiplier of 2.5, dividends of...
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