The most recent financial statements for Bello Co. are shown here: Current Sales

Question

The most recent financial statements for Bello Co. are shown here: Current Sales 11,760 Debt $11,760 Debt $15,880 Costs 13,050 Fixed assets 27,450 Equity23,330 Taxable incomeS 6150 Total $39,210 Total$ 39,210 Taxes (24%) 1.476 Net income $ 4,674 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 colculations and enter your answer os a percent rounded 2 decimal places, e.g, 32.16.) Intemal growth rate rey 1 of & Next> TOSHIBA 5 6 7 8 9 0 RTY UP

Explanation / Answer

Internal Growth Rate = [ROA x B] / [1 – (ROA x B)]

Where, ROA = Return on Assets

B = Retention Ratio

Return on Assets [ROA] = [Net Income / Total Assets] x 100

= [$4,674 / 39,210] x 100

= 11.92%

Retention Ratio [B] = 1 – Dividend pay-out Ratio

= 1 – 0.45

= 0.55 or

= 55%

Internal Growth Rate = [(ROA x B) / {1 – (ROA x B)} x 100

= [0.1192 x 0.55] / [1 – (0.1192 x 0.55)] x 100

= [0.06556 / 0.93444] x 100

= 7.02% (Rounded to 2 decimal places)

“Therefore, The Internal Growth Rate = 7.02%”

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