The most recent financial statements for Bello Co. are shown here: Assets and co

Question

The most recent financial statements for Bello Co. are shown here:

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 percent dividend payout ratio.

What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded 2 decimal places, e.g., 32.16.)

Income Statement Balance Sheet   Sales $ 19,300 Current assets $ 11,780 Debt $ 15,940   Costs 13,200 Fixed assets 27,900 Equity 23,740   Taxable income $ 6,100     Total $ 39,680     Total $ 39,680   Taxes (21%) 1,281     Net income $ 4,819

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 percent dividend payout ratio.

What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded 2 decimal places, e.g., 32.16.)

  

Explanation / Answer

ROA=net income/total assets

=(4819/39680)=0.121446572

Retention ratio=1-dividend payout

=1-0.45

=0.55

Internal growth rate=(ROA*Retention ratio)/[1-(ROA*Retention ratio)]

=(0.121446572*0.55)/[1-(0.121446572*0.55)]

which is equal to

=7.16%(Approx).

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