The most recent financial statements for Shinoda Manufacturing Co. are shown bel

Question

The most recent financial statements for Shinoda Manufacturing Co. are shown below:

The most recent financial statements for Shinoda Manufacturing Co. are shown below:

The most recent financial statements for Shinoda Manufacturing Co. are shown below. Income Statement Balance Sheet Sales $64,100 Current assets 27,500 Debt 43,700 Costs 44,730 Fixed assets 80,400 Equity 64.200 Taxable income $19,370 Total 107,900 Total $107,900 5,811 Tax (30%) 13,559 Net Income Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 42 percent dividend payout ratio. No external financing is possible. Required: What is the internal growih rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g. 32.16). STT wrong Internal growth rate

Explanation / Answer

Internal Growth Rate= ROA x b/[1-(ROA xb)]

ROA = Return on Assets=Net income/ Total Assets
b = Retention ratio (1- Dividend payout ratio)

ROA=$13,559/$107,900

   =0.126033

b=(1-0.42)= 0.58

Internal Growth= 0.1260 x 0.58/[1-(0.1260 x 0.58)]

                                =0.073099/1-0.073099

                                =0.073099/0.926901

                                =0.078864

                                Or 7.89%

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