Katelyn's Kites has net income of $240 and total equity of $2,000. The debt-equity ratio is 1.0 and the plowback ratio is 40 percent. What is the internal growth rate?

Question

Quizplus · Accepted Answer

The internal growth rate is calculated as the product of the plowback ratio and the return on equity. The return on equity is calculated as net income divided by total equity. In this case, the net income is $240 and the total equity is $2,000, so the return on equity is 12%. The plowback ratio is 40%, so the internal growth rate is 12% * 40% = 4.8%.

Katelyn's Kites Has Net Income of $240 and Total Equity