Gilmore, Inc., had equity of $215,000 at the beginning of the year. At the end of the year, the company had total assets of $370,000. During the year, the company sold no new equity. Net income for the year was $45,000 and dividends were $6,600. a.Calculate the internal growth rate for the company. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b.Calculate the internal growth rate using ROA × b for beginning of period total assets. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c.Calculate the internal growth rate using ROA × b for end of period total assets. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Question
Asked Oct 14, 2019

Gilmore, Inc., had equity of $215,000 at the beginning of the year. At the end of the year, the company had total assets of $370,000. During the year, the company sold no new equity. Net income for the year was $45,000 and dividends were $6,600.

 

a.

Calculate the internal growth rate for the company. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Calculate the internal growth rate using ROA × b for beginning of period total assets. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c. Calculate the internal growth rate using ROA × b for end of period total assets. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 

 
check_circleExpert Solution
Step 1

The maximum growth which a firm can achieve by using internal resources and fund is known as internal growth rate. Funds arranged from outsiders are not considered in internal growth rate.

It is given that,

Equity at the beginning is $215,000.

Total asset is $370,000.

Net income is $45,000.

Dividend is $6,600.

Step 2

The formula to calculate retention ratio is given below:

Retention ratio 1- Dividend payout ratio
Dividend
=1-
Net income
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Retention ratio 1- Dividend payout ratio Dividend =1- Net income

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Step 3

Substitute $6,600 for dividend an...

$6,600
Retention ratio =1-
$45,000
=1-0.14667
=0.85333
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$6,600 Retention ratio =1- $45,000 =1-0.14667 =0.85333

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