Suppose a firm has a net income of $600, cash dividends of $200, total assets of $4,500 and liabilities of $2,000. What is the internal growth rate?
4.4 percent
8.0 percent
8.9 percent
13.3 percent
16.0 percent
ROA=Net income/Total assets
=(600/4500)=0.133(Approx)
Dividend payout ratio=Dividend/Net income
=(200/600)=0.333
Retention ratio=1-Dividend payout ratio
=(1-0.333)=0.667
Hence internal growth rate=(ROA*Retention rate)
=(0.133*0.667)
=8.9%(Approx).
Suppose a firm has a net income of $600, cash dividends of $200, total assets of...
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