What are the internal and sustainable growth rates? ( Do not round intermediate

Question

What are the internal and sustainable growth rates? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

What are the internal and sustainable growth rates using ROE × b and (ROA × b) and the end of period equity (assets)? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

What are the growth rates if you use the beginning of period equity in this equation? (Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)

Please show all work for explanation, thank you

Better Burgers reported the following numbers (in millions) for the years ending February 2011 and 2012.

Explanation / Answer

Requirement 1

Internal Growth rate = ROA x Retention Ratio

( 1- ROA) x Retention Ratio

ROA = Net Income/ Total Assets

1427/12778

=0.11

Retantion Ratio = Addition to the retained Earning/Net Income

= 1221 / 1427

=0.86

Internal Growth Rate =0.11*0.86

(1-0.11)*0.86

=0.1236

=0.12 or 12 %

Sustainable growth rate = (1-d) x ROE

d = Devidend pay out ratio

d = 206/1427

=14.43% or 0.1443

ROE = Net income / Sahre holder equity

=1427/4504

= 0.3168 or 31.68 %

SGR =(1-0.14) x 0.32

= 0.28 or 28 %

Requirement 2

Internal Growth rate = ROA*b / 1- (ROA*b)

ROA =0.11

   b = Retaion Rato(1-Devidend Payout Ratio)

=0.86(1-0.14)

   =0.74

IGR = 0.11*0.74/1-(0.11*0.74)

=0.0814/0.9186

=0.089 or 8.9 %

SGR =ROE * B

=0.32*0.28

   = 8.9 % or 0.089

Requirement 3

Here Internal Growth rate would not change but SGR Woluld change

The change in SGR woulld as follow

Sustainable growth rate = (1-d) x ROE

  ROE = Net income / Sahre holder equity

=1427/6221

= 0.2293 or 23 %

= (1-0.14)*0.2293

=0.1972 or 19.72 %

Particular Internal growth rate 12 % Sustainable growth rate 28 %

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