The most recent financial statements for Live Co. are shown here: Assets and cos
ID: 2821643 • Letter: T
Question
The most recent financial statements for Live Co. are shown here:
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 29 percent dividend payout ratio. No external financing is possible.
What is the internal growth rate (in %)?
(Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 4 decimal places. For example, 1.23456% should be entered as 1.2346)
Income Statement Sales $17662 Costs $10732 Taxable Income ? Taxes (40%) ? Net Income ?Explanation / Answer
THE INTERNAL GROWTH RATE IS, HOW MUCH A COMPANY FINANCES ITSELF INTERNALLY WITHOUT NEEDING ADDITIONAL FUNDS FROM OUTSIDE ,
THE FORMULA FOR THE GROWTH RATE IS :
RETURN ON ASSETS * EARNINGS RETENTION / 1 - return on assets * earnings retention
=NET INCOME/ ASSETS
THE INCOME STATEMENT IS :
SALES = $17662
COSTS = $10732
GROSS PROFIT = $6930
TAXES = $2772
NET INCOME = $4158
return on assets = net income/ total assets = 4158/40387 =10.29%
RETURN ON ASSETS * b /1 - ROA *b
retention ratio = 71%
= 0.073059/ 1- 0.073059
= 0.073059/ 0.926941
= 7.8817
=7.8817%
equity = $21353
total assets - total debt = equity
$40387 - $19035= $21353
=