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The most recent financial statements for Live Co. are shown here:
Income Statement Balance Sheet
Sales $4,800 Current assets $5,102 Debt $10,201
Costs
3,168

Fixed assets 12,491 Equity 7,392
Taxable income $1,632 Total
$17,593

Total
$17,593

Taxes (34%) 555
Net income
$1,077

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. No external equity financing is possible.
Required:
What is the internal growth rate?
A. 4.48%
B. 4.58%
C. 4.38%
D. 11.36%
E. 1.87%

Respuesta :

Answer:

The answer is "Option A".

Explanation:

Using formula:

[tex]\text{Equity Return} = \frac{ \text{Net Income}}{ \text{Total Assets}} \times 100[/tex]

                       [tex]= \frac{1,077}{17,593} \times 100 \\\\= 0.0612175297 \times 100\\\\= 6.12175297\\\\=6.12 \%[/tex]  

[tex]\text{Calculating the Plowback Ratio} \ (b) = 1- \text{Dividend Payout Ratio}[/tex]

                                                       [tex]= 1-0.30 \\\\ = 0.70[/tex]

[tex]\text{Internal Growth Rate} = \frac{ROA \times b }{(1-ROA \times b)} \\\\[/tex]

                                  [tex]= \frac{0.0612 \times 0.70}{(1-0.0612\times 0.70)} \\\\= \frac{0.04284}{0.95716} \\\\ =0.044754073 \\\\ =4.47\%[/tex]