Calculate the internal growth rate given the following information: total assets $600,000; net income $130,000; dividends paid $40,000.
A) 15.45%
B) 16.55%
C) 17.65%
D) 18.75%
E) 19.85%

Question

Quizplus · Accepted Answer

The internal growth rate can be calculated using the formula: Internal Growth Rate = (Retention Ratio * ROA) / (1 - Retention Ratio * ROA), where Retention Ratio = (Net Income - Dividends) / Net Income, and ROA = Net Income / Total Assets. Here, Retention Ratio = ($130,000 - $40,000) / $130,000 = $90,000 / $130,000 = 0.6923, and ROA = $130,000 / $600,000 = 0.2167. Plugging these into the formula gives: Internal Growth Rate = (0.6923 * 0.2167) / (1 - 0.6923 * 0.2167) = 0.1500 or 15.00%. However, given the options provided, it seems there might have been a calculation or transcription error in the question or answer choices. Based on the standard formula and the provided data, none of the options accurately reflect the calculated internal growth rate. Re-evaluating with the correct approach: Internal Growth Rate = Retained Earnings / Total Assets = ($130,000 - $40,000) / $600,000 = $90,000 / $600,000 = 0.15 or 15%. Given the options and the discrepancy, the closest correct answer based on the standard calculation method is not listed.

Calculate the Internal Growth Rate Given the Following Information: Total