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 S1900 assets 11,740 Deb15,820 12,960 Fixed assets 27,000 Equity 22,920 Current $ 6,140 T$38,740 Total $38,740 Income Taxes (25%) 1,535 Net Income 4,605 Assets and costs are proportional to sales. Debt and equity are not. The company maintalns a constant 40 percent dividend payout ratico. What is the Internal growth rate? (Do not round Intermedlate calculations and enter your answer as a percent rounded 2 declmal places, e.g., 32.16.) Internal growth rate

Explanation / Answer

ROA=Net income/Total assets

=(4605/38740)=0.118869385

Retention ratio=1-dividend payout ratio

=1-0.4=0.6

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

=(0.118869385*0.6)/[1-(0.118869385*0.6)]

which is equal to

=7.68%(Approx).

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