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 StatementBalance Sheet Sales 11,720 Debt15,760 12,880 Fixed assets 26,550 Equity 22,510 $19,000 Current Costs Taxable income 6120 $ 38.270 Total $38,270 Taxes (21%) 1,285 Net income 4.835 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 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

Explanation / Answer

ROA=net income/total assets

=(4835/38270)=0.126339169

Retention ratio=1-dividend payout ratio

=(1-0.35)=0.65

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

(0.126339169*0.65)/[1-(0.126339169*0.65)]

which is equal to

8.95%(Approx).

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