The most recent financial statements for Bello Co. are shown here: Income Statem
ID: 2818975 • Letter: T
Question
The most recent financial statements for Bello Co. are shown here: Income Statement Balance Sheet Sales $ 19,400 Current assets $ 11,800 Debt $ 16,000 Costs 13,200 Fixed assets 28,350 Equity 24,150 Taxable income $ 6,200 Total $ 40,150 Total $ 40,150 Taxes (22%) 1,364 Net income $ 4,836 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 55 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
=(4836/40150)=0.120448318
Retention ratio=1-dividend payout ratio
=(1-0.55)=0.45
Internal growth rate=(ROA*Retention ratio)/[1-(ROA*Retention ratio)]
=(0.120448318*0.45)/[1-(0.120448318*0.45)]
which is equal to
=5.73%(Approx).