Given the financial statements below for Dragonfly Enterprises, what would be the internal growth rate (IGR) if the company decided to change the dividend payout rate to 58.9%? Enter your answer as the nearest tenth of a percent (e.g., 12.3), but do not include the % sign.
Dragonfly Enterprises |
||
Income Statement ($ Million) |
2011 |
|
Sales |
370 |
|
Cost of Goods Sold |
226 |
|
Selling, General, & Admin Exp. |
62 |
|
Depreciation |
20 |
|
Earnings Before Interest & Taxes |
62 |
|
Interest Expense |
12 |
|
Taxable Income |
50 |
|
Taxes at 40% |
20 |
|
Net Income |
30 |
|
Balance Sheets as of 12-31 |
||
Assets |
2010 |
2011 |
Cash |
10 |
10 |
Account Receivable |
46 |
50 |
Inventory |
43 |
45 |
Total Current Assets |
99 |
105 |
Net Fixed Assets |
166 |
195 |
Total Assets |
265 |
300 |
Liabilities and Owners Equity |
2010 |
2011 |
Accounts Payable |
26 |
30 |
Notes Payable |
0 |
0 |
Total Current Liabilities |
26 |
30 |
Long-Term Debt |
140 |
150 |
Common Stock |
22 |
22 |
Retained Earnings |
77 |
98 |
Total Liab. and Owners Equity |
265 |
300 |
We take 2 assumptions(Assuming Total Assets of 2011)
ROA assuming Total Assets of 2011 = Net Income/Total assets of 2011
= 30/300 = 10%
b = 58.9%
Internal Growth Rate = ROA*b/(1-ROA*b) = 10%*58.9%/(1-58.9%*10%) =
6.26%
We take assumptions(Assuming Average Total Assets )
Average Total assets = (265+300)/2 = 282.50
ROA = 30/282.50 = 10.6195%
b = 58.9%
Internal Growth Rate = ROA*b/(1-ROA*b) =
10.6195%*58.9%/(1-10.6195%*58.29%) = 6.67%
Please Discuss in case of Doubt
Best of Luck. God Bless
Please Rate Well
Get Answers For Free
Most questions answered within 1 hours.