Question

You’ve collected the following information about Odyssey, Inc.:

Sales | $ | 222,564 | |

Net income | $ | 12,555 | |

Dividends | $ | 7,014 | |

Total debt | $ | 53,387 | |

Total equity | $ | 69,215 |

What growth rate could be supported with no outside financing at all? (in %) (round 4 decimal places)

Answer #1

The growth rate that can be supported with no outside financing is the internal growthrate.

To calculate the internal growth rate, we first need the ROA, which is:

ROA = net income/(Toala debt + total equity) = 12555/(53387+69215) = 10.24%

This means the internal growth rate is:

Internal growth rate = (ROA × b) / [1 – (ROA × b)]

where b = retention ratio = 1 - dividend/net income = 1 - 7014/12555 = 44.13%

Internal growth rate = [.1024(.4413)] / [1 – .1024(.4413)]

=> Internal growth rate = .0473 or 4.73%

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Sales
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Net income
$
10,096
Dividends
$
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Total debt
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Total equity
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Sales
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Net income
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Dividends
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Total debt
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Total equity
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Net income
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Total debt
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Total equity
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Net
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Total debt
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Total equity
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