The most recent financial statements for Bello Co. are shown here: Income Statem

Question

The most recent financial statements for Bello Co. are shown here: Income Statement Sales Costs Taxable income$ 6,300 Tota Balance Sheet $20,100 Current $11,940 Debt $16,420 13,800 Fixed assets 31,500 Equity 27,020 Tota $43,440 $43,440 Taxes (21%) 1,323 Net income 4,977 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.) Internal growth rate

Explanation / Answer

Plowback ratio = b = 1-Payout ratio = 1-45% = 55%

ROA = Net income / Total assets = 4977/43440 = 11.457182%

.

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

Internal growth rate = 11.457182% x 55% / (1 -11.457182% x 55%)

Internal growth rate = 6.73%

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