A firm has $50 million in equity and $20 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's internal growth rate?
A) 9%
B) 10%
C) 11%
D) 12%

Question

Quizplus · Accepted Answer

B) Internal growth rate = (net income / beginning assets) × (1 - payout ratio)
Internal growth rate = ($10 million) / ($50 million + $20 million) × (100% - 30%) = 10%

A Firm Has $50 Million in Equity and $20 Million