Question

The most recent financial statements for Live Co. are shown here:

Income Statement
Sales	$17662
Costs	$10732
Taxable Income	?
Taxes (40%)	?
Net Income	?

Balance Sheet
Current Asset	$13271	Debt	$19035
Fixed Asset	$27116	Equity	?

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 29 percent dividend payout ratio. No external financing is possible.

What is the internal growth rate (in %)?

(Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 4 decimal places. For example, 1.23456% should be entered as 1.2346)

Answer 1

THE INTERNAL GROWTH RATE IS, HOW MUCH A COMPANY FINANCES ITSELF INTERNALLY WITHOUT NEEDING ADDITIONAL FUNDS FROM OUTSIDE ,

THE FORMULA FOR THE GROWTH RATE IS :

RETURN ON ASSETS * EARNINGS RETENTION / 1 - return on assets * earnings retention

=NET INCOME/ ASSETS

THE INCOME STATEMENT IS :

SALES = $17662

COSTS = $10732

GROSS PROFIT = $6930

TAXES = $2772

NET INCOME = $4158

return on assets = net income/ total assets = 4158/40387 =10.29%

RETURN ON ASSETS * b /1 - ROA *b

retention ratio = 71%

= 0.073059/ 1- 0.073059

= 0.073059/ 0.926941

= 7.8817

=7.8817%

equity = $21353

total assets - total debt = equity

$40387 - $19035= $21353

=