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

Question

The most recent financial statements for Bello Co. are shown here: Income Statement Sales Costs Taxable Balance Sheet $19,900 assets Cut$11,900 Debt $16,300 Equity 26,200 13,600 Fixed assets 30,600 $ 6,300 Tota $42,500 T$42,500 income Taxes (23%) 1,449 Net income $4,851 Assets and costs are proportional to sales. bebt and equity are not. The company maintains a constant 40 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.) Internal growth rate This is a numeric cell, so please enter numbers only

Explanation / Answer

We have

Internal Growth Rate = (ROA*b)/(1-(ROA*b))

Where

ROA – Return on asset = ROA = Net Income / Total Assets = 4851/42500=.1141

b – Retention ratio = 1-payout ratio = 1-.4 = .6

Internal Growth Rate = (.1141*.6)/(1-(.1141*.6))

= .06846/(1-.06846)

= .06846/.93154

= .07349

= 7.35%

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