1. Neal\'s Nails has Total Assets of $150,000, Net Income of $16,500, and divide
ID: 2816344 • Letter: 1
Question
1. Neal's Nails has Total Assets of $150,000, Net Income of $16,500, and dividends of $4,950. What is the firm’s Internal Growth rate? Can the firm grow at 8 percent without raising external funds and why? (Hint: Need to compute the payout ratio, fraction reinvested, and ROA).
8.34 percent; No, because 8 percent < Internal Growth Rate
8.34 percent; Yes, because 8 percent < Internal Growth Rate
3.41 percent; No, because 8 percent > Internal Growth Rate
No idea
2. A firm has net working capital of $600, net fixed assets of $2,400, sales of $8,000, and current liabilities of $800. How many dollars worth of sales are generated from every $1 in total assets? Is the firm more or less efficient than its competitor that has a Total Asset Turnover of 2.45?
2.11, less efficient
2.11, more efficent
1.44, less efficient
2.67, less efficient
2.67, more efficient
Explanation / Answer
return on assets = 16500/150,000 = 11%
fraction revested = 1 - 4950/16500= 0.70
Internal growth = 11*0.7%/(1 - 11*0.7%) = 8.34%
8.34 percent; Yes, because 8 percent < Internal Growth Rate
b. current assets = 800 + 600 = 1400
asset turnover = 8000/(2400 + 1400) = 2.11
2.11, less efficient
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