Internal growth rate: Mercantile Company has profit of $3,413,500 on assets of $16,109,445 and retains 55 per cent of its income every year. What is the company's internal growth rate?

Question

Quizplus · Accepted Answer

The internal growth rate formula is:

Internal growth rate = Retention rate x Return on assets

Where:
Retention rate = 55%
Return on assets = (Profit ÷ Assets) = ($3,413,500 ÷ $16,109,445) = 21.17%

Therefore, 
Internal growth rate = 55% x 21.17% = 11.7%

Therefore, the answer is  C.

Internal Growth Rate: Mercantile Company Has Profit of $3,413,500 on Assets