Good Foods has net income of $82,490, total equity of $518,700, and total assets of $1,089,500. The dividend payout ratio is. 30. What is the internal growth rate? A) 2.32 percentB) 3.57 percentC) 5.60 percentD) 2.87 percentE) 4.94 percent

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Business

Iris

10 February, 13:26

Good Foods has net income of $82,490, total equity of $518,700, and total assets of $1,089,500. The dividend payout ratio is. 30. What is the internal growth rate? A) 2.32 percentB) 3.57 percentC) 5.60 percentD) 2.87 percentE) 4.94 percent

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Key · Answer 1

5.6%

Explanation:

Internal growth rate can be calculated as below:

Internal growth rate = (Return on asset x Retention Rate) / [1 - (Return on asset x Retention Rate) ]

Retention rate = 1 - Payout ratio = 1 - 30% = 70%

Return on asset = Net income/Asset = 82,490/1,089,500 = 7.6%

Putting all the number together, we have:

Sustainable growth rate = (7.6% x 70%) / [1 - (7.6% x 70%) ] = 5.6%