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3 March, 20:57

Last year Rain Repel Corporation had an ROA of 5 percent and a dividend payout ratio of 90 percent. What is the internal growth rate?

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  1. 3 March, 23:13
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    0.5%

    Explanation:

    Given that,

    Return on asset (ROA) = 5 percent

    Dividend payout ratio = 90 percent

    Here, the internal growth rate is calculated by multiplying ROA with (1 - Dividend payout ratio).

    Internal growth rate:

    = [Return on asset * (1 - Dividend payout ratio) ] * 100

    = [5 percent * (1 - 90 percent) ] * 100

    = (0.05 * 0.1) * 100

    = 0.005 or 0.5%

    Therefore, the internal growth rate is 0.5%.
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