6. Fried Donuts has total assets of $846,200 and total debt of $467,500. What is

Question

6. Fried Donuts has total assets of $846,200 and total debt of $467,500. What is the equity multiplier? 7. Allison’s Trees has sales of $864,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate? 6. Fried Donuts has total assets of $846,200 and total debt of $467,500. What is the equity multiplier? 7. Allison’s Trees has sales of $864,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate? 6. Fried Donuts has total assets of $846,200 and total debt of $467,500. What is the equity multiplier? 7. Allison’s Trees has sales of $864,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate?

Explanation / Answer

6.Total assets=debt+equity

Hence equity=(846200-467500)=$378700

Equity multiplier=Total assets/equity

=(846200/378700)

which is equal to

=2.23(Approx).

2.

ROA=Net income/total assets

=(68200/687300)=0.099228866

Dividend payout ratio=Dividends/Net income

=(27000/68200)=0.395894428

Retention ratio=1-Dividend payout ratio

=(1-0.395894428)=0.604105572

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

=(0.099228866*0.604105572)/[1-(0.099228866*0.604105572)

which is equal to

=6.38%(Approx).

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