[Solved] How to calculate internal growth rate

leslie052581

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Problem 4-6 Calculating Internal Growth [LO3]​

The most recent financial statements for Mandy Company are shown here:

Income StatementBalance Sheet
Sales$ 20,100Current assets$ 11,940Debt$ 16,420
Costs13,800Fixed assets31,500Equity27,020



Taxable income$ 6,300Total$ 43,440Total$ 43,440




Taxes (21%)1,323

Net income$ 4,977




Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 percent dividend payout ratio. What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded 2 decimal places, e.g., 32.16.)
internal growth rate %
 

Problem 4-6 Calculating Internal Growth [LO3]​

The most recent financial statements for Mandy Company are shown here:

Income StatementBalance Sheet
Sales$ 20,100Current assets$ 11,940Debt$ 16,420
Costs13,800Fixed assets31,500Equity27,020



Taxable income$ 6,300Total$ 43,440Total$ 43,440




Taxes (21%)1,323

Net income$ 4,977




Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 45 percent dividend payout ratio. What is the internal growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded 2 decimal places, e.g., 32.16.)
internal growth rate %

Hello Leslie,
Thanks for your post. To calculate the internal growth rate, you can use the following formula:

Internal Growth Rate = (Retained Earnings / Total Assets) * (1 + Dividend Payout Ratio)

First, calculate the retained earnings. Retained earnings are the portion of the net income not paid out as dividends:

Retained Earnings = Net Income * (1 - Dividend Payout Ratio)
= $4,977 * (1 - 0.45) = = $2,737.35

Now, calculate the internal growth rate:

Internal Growth Rate = ($2,737.35 / $43,440.00) * (1 + 0.45) = = 0.091205 = = 9.12%

1698213772852.png

I hope you have got your answer. If you have any further queries regarding this problem then inform us in the reply and if your query is realted to a new problem, please open a new thread to get a faster solution.

Regards
ExcelDemy Team
 

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