A firm has ROA of 20%,ROE of 25%,and a payout ratio of 30%.What is the firm's internal growth rate?

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 Retention Ratio = 1 - Payout Ratio. Given ROA = 20% or 0.2, Payout Ratio = 30% or 0.3, thus Retention Ratio = 1 - 0.3 = 0.7. Plugging these values into the formula gives: Internal Growth Rate = (0.2 * 0.7) / (1 - 0.2 * 0.7) = 0.14 or 14%.

A Firm Has ROA of 20%,ROE of 25%,and a Payout