A firm has $40 million in equity and $20 million of debt, it pays dividends of 20% of net income, and has a net income of $10 million. What is the firm's internal growth rate?
A) 12.2%
B) 13.3%
C) 14.1%
D) 15.2%

Question

Quizplus · Accepted Answer

B) Internal growth rate = (net income / beginning assets) × (1 - payout ratio)
Internal growth rate = ($10 million) / ($40 million + $20 million) × (100% - 20%) = 13.33%

A Firm Has $40 Million in Equity and $20 Million