First 2 are right just not sure how to get the last one Chapter 4-Homework (12-1
ID: 2823837 • Letter: F
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First 2 are right just not sure how to get the last one
Chapter 4-Homework (12-1416, 17 21 22) Question fot 6 100 points Problem 4-21 Sustainable Growth and Outside Financing [LOS) Net income Dividerrls Total deb Total equty 62.000 $ 9,000 $ 90,000 What is the sustanable growth rate for the company? (Do not round intermediate calculations. Round your answer to 2 decimal places. (a9-32.161? 877 it it does grow at this rate, how much new bonowing will take place in the coming year, assuming a constare debr-eqity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places (o.g. 3216) 7017 54 What growth rate coud be supported with no outside financing at all? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g, 32.16))Explanation / Answer
The growth rate that can be supported with no outside financing is the internal growth rate.
To calculate the internal growth rate, we first need the ROA, which is:
ROA = Return / Total assets
= $14,000 / ($80,000+$62,000)
= 0.09859
= 9.86%
The retention ratio is:
b = 1 - payout ratio
= 1 - $9,000 / $14,000
= 0.35714
= 35.714%
This means the internal growth rate is:
Internal growth rate = (ROA × b) / [1 – (ROA × b)]
Internal growth rate = 0.0365, or 3.65%
Internal growth rate = (ROA × b) / [1 – (ROA × b)]
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