Deep Falls Timber has net sales of $642,100,net income of $50,800,dividends paid of $12,700,total assets of $658,000,and total equity of $444,400.What is the internal growth rate?
A)5.83 percent
B)6.24 percent
C)6.15 percent
D)5.18 percent
E)7.70 percent

Question

Quizplus · Accepted Answer

The internal growth rate can be calculated using the formula: Internal Growth Rate = (ROA * Retention Ratio) / (1 - (ROA * Retention Ratio)), where ROA (Return on Assets) = Net Income / Total Assets, and Retention Ratio = (Net Income - Dividends) / Net Income. Here, ROA = $50,800 / $658,000 = 0.0772, and Retention Ratio = ($50,800 - $12,700) / $50,800 = 0.7500. Plugging these values into the formula gives an internal growth rate of approximately 6.15 percent.

Deep Falls Timber Has Net Sales of $642,100,net Income of $50,800,dividends