A firm has $70 million in equity and $30 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) 6%
B) 7%
C) 8%
D) 9%

Question

Quizplus · Accepted Answer

B) Internal growth rate = (net income / beginning assets) × (1 - payout ratio)
Internal growth rate = ($10 million ) / ($70 million + $30 million) × (100% - 30%) = 7%

A Firm Has $70 Million in Equity and $30 Million