Question

1. Calculate the Internal Growth Rate using the following information: Total Assets $800,000 Net Income 39,000...

1. Calculate the Internal Growth Rate using the following information:
Total Assets $800,000
Net Income 39,000
Dividends 20,000

2. Use the following information and the DuPont Identity to solve for Profit Margin:
Net income $66,000
Total Asset Turnover 1.15
Debt/Equity Ratio 1.75
Total Equity $460,000

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Homework Answers

Answer #1

Ans 1) Internal growth rate = ROA * retention ratio/(1 - ROA * retention ratio)

= 39000/80000 * (39000 - 20000)/39000/(1 - 39000/80000 * (39000 - 20000)/39000)

= .2375/(1 - .2375)

= 36.06%

Ans 2) Debt/Equity = 1.75

Debt = 1.75 * 460000

= $805,000

Equity = $460000

Total Asset = Equity + Debt

= 805000 + 460000

= 1265000

total asset turnover = 1.15

sales/total asset = 1.15

sales = 1.15 * 1265000

sales = 1454750

Profit margin = Net Income/sales

= 66000/1454750

= 4.54%

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