The most recent financial statements for Bello Co. are shown here: Assets and co
ID: 2338438 • Letter: T
Question
The most recent financial statements for Bello Co. are shown here:
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 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.)
Income Statement Balance Sheet Sales $ 19,300 Current assets $ 11,780 Debt $ 15,940 Costs 13,200 Fixed assets 27,900 Equity 23,740 Taxable income $ 6,100 Total $ 39,680 Total $ 39,680 Taxes (21%) 1,281 Net income $ 4,819Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 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
=(4819/39680)=0.121446572
Retention ratio=1-dividend payout
=1-0.45
=0.55
Internal growth rate=(ROA*Retention ratio)/[1-(ROA*Retention ratio)]
=(0.121446572*0.55)/[1-(0.121446572*0.55)]
which is equal to
=7.16%(Approx).