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 Balance Sheet Sales $ 19,400 Current assets $ 11,800 Debt $ 16,000 Costs 13,200 Fixed assets 28,350 Equity 24,150 Taxable income $ 6,200 Total $ 40,150 Total $ 40,150 Taxes (22%) 1,364 Net income $ 4,836 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 55 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

=(4836/40150)=0.120448318

Retention ratio=1-dividend payout ratio

=(1-0.55)=0.45

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

=(0.120448318*0.45)/[1-(0.120448318*0.45)]

which is equal to

=5.73%(Approx).

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