Part A: Part B: The most recent financial statements for Bello Co. are shown her

Question

Part A:

Part B:

The most recent financial statements for Bello Co. are shown here: Income Statement Sales Costs Taxable Balance Sheet $20,900 Current Deb$16,900 14,400 Fixed assets 35,100 Equity 30,300 $12,100 Debt assets Total $47,200 Total $47,200 income Taxes (25%) 1,625 Net income 4,875 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio. What is the internal growth rate? (Do not round intermedlate calculations and enter your answer as a percent rounded 2 declmal places, e.g., 32.16.) Internal growth rate

Explanation / Answer

1.

Plowback ratio = b = 1-Payout ratio = 1-35% = 65%

ROA = Net income / Total assets = 4875/47200 = 10.328390%

.

Internal growth rate = ROA x b / (1 -ROA x b)

Internal growth rate = 10.328390% x 65% / (1 -10.328390% x 65%)

Internal growth rate = 7.20%

2.

Cash flow to creditors = Interest paid + (Repayment of loan - New loan)

Cash flow to creditors = 3380 + (9264 - 8220)

Cash flow to creditors = $4,424

Correct option is > $4,424

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