Need help calculating internal growth rate value 2.00 points You\'ve collected t
ID: 2819357 • Letter: N
Question
Need help calculating internal growth rate
value 2.00 points You've collected the following information about Erna, Inc. Sales Net income Dividends Total debt Total equity - $ 275,000 19,000 - $ 8,100 - $ 67,000 - $ 91,000 Requirement 1: What is the sustainable growth rate for the company? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Sustainable growth rate 13.60 % Requirement 2: If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Additional borrowing 9112 Requirement 3: What growth rate could be supported with no outside financing at all? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Internal growth rate 51.841% References eBook & ResourcesExplanation / Answer
Sales $ 2,75,000.00 Net Income $ 19,000.00 Dividends $ 8,100.00 Total Debt $ 67,000.00 Total Equity $ 91,000.00 Retention Ratio=1-(Dividend/Net Income) Retention Ratio=1-(8100/19000) 0.5737 ROE=Net Income/Total Equity=($19000/$91000) 0.2088 Sustainable growth rate=(ROE*Retention ratio)/((1-(ROE*Retention ratio)) Sustainable growth rate=(.2088*.5737)/((1-(.2088*.5737)) 13.61% Total Assets after sustainable growth=(1+Sustainable growth rate)*(Total Debt+Total Equity) Total Assets=1.1361*($67000+$91000) 179503.8 New Total Debt=((Debt/Debt+Equity))*Total Assets New Total Debt=((67000/67000+91000))*179503.80 76118.7 Additional borrowings=($76118.70-$67000) 9118.7 Internal Growth rate=(ROA*retention ratio)/(1-(ROA*Retention ratio)) ROA=(Net Income/(Total Debt+Total Equity) ROA=($19000/($67000+$91000) 0.120253165 ROA 12.03% Internal Growth rate=(.1202*.5737)/(1-(.1202*.5737)) 7.41%
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