Question

A. The Veggie Hut has net income of $16,400, total equity of $92,700, and total assets...

A. The Veggie Hut has net income of $16,400, total equity of $92,700, and total assets of $179,500. The dividend payout ratio is 0.35. What is the internal growth rate?

Group of answer choices

​12.99 percent

​6.30 percent

​9.14 percent

​5.94 percent

​17.69 percent

​B. Valentino's maintains a constant debt-equity ratio of 0.55. The firm had net income of $12,800 for the year and paid $10,500 in dividends. The firm has total assets of $102,000. What is the sustainable growth rate?

​Group of answer choices

​19.45 percent

​17.97 percent

​2.31 percent

​3.62 percent

​9.14 percent

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Homework Answers

Answer #1

a.Retention ratio=1-payout ratio

=(1-0.35)=0.65

ROA=net income/Total assets

=16400/179500

=9.13649025%(Approx)

Internal growth rate=(ROA*Retention ratio)/[1-(ROA*Retention ratio)]

=(0.0913649025*0.65)/[1-(0.0913649025*0.65)]

=6.30%(Approx)

b.Dividend payout ratio=Dividend payout/Net income

=10500/12800

=0.8203125

Retention ratio=1-payout ratio

=1-0.8203125

=0.1796875

Debt-equity ratio=Debt/equity

Debt=0.55*equity

Total assets=Total liabilities+Total equity

102,000=0.55*equity+equity

equity=102,000/(0.55+1)

=$65806.4516

ROE=net income/equity

=12800/65806.4516

=19.4509804%

Sustainable growth rate=(ROE*Retention ratio)/[1-(ROE*Retention ratio)]

=(0.194509804*0.1796875)/[1-(0.194509804*0.1796875)]

=3.62%(Approx)

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