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21 December, 13:20

Cold Ice has a profit margin of 8.3 percent and a payout ratio of 42 percent. The firm has annual sales of $386,400, current liabilities of $37,200, long-term debt of $123,800, and net working capital of $16,700, and net fixed assets of $391,500. No external equity financing is possible. What is the internal growth rate?

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  1. 21 December, 17:03
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    The internal growth rate is 4.36%

    Explanation:

    net income = 8.3%*386,400

    = $32,071.20

    net working capital = current assets - current liabilities

    current assets - 37200 = 16700

    = $53,900

    total assets = current assets + net fixed assets

    = 53,900 + 391,500

    = 445,400

    Then:

    ROA = 53,900/445400

    = 0.072005

    b = 1 - 48% = 0.52

    internal growth rate = 0.072005*0.52/1 - (0.072005*0.52)

    = 0.041763/0.958237

    = 4.36%

    Therefore, The internal growth rate is 4.36%
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