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Generic Corp earned $ 95 million (after tax) last year with corporate assets available totalling $...

Generic Corp earned $ 95 million (after tax) last year with corporate assets available totalling $ 400 million. If they have a target growth rate of 12% they need to achieve to remain competitive from an industry and analyst perspective, how much do they need to invest back into the firm?

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Answer #1

Given that $ 95 million is earned when the assets available is $ 400 million. Now we will calculate the percentage of return earned from the net assets for this year = 95÷400 = 0.2375 or 23.75%.

Now the required growth rate for next year is 12% i.e $95 million + 12% =$ 106.4 millions.

To earn $ 106.4 millions the amount of assests to be held = 106.4÷ 23.75% = $ 448 millions.

From the above calculations the amount to be needed to invest back in the firm will be 448-400= $ 48 million

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