Swan Supply Company has net income of $1,212,335 on assets of $12,522,788 and retains 70 percent of its income every year. What is the company's internal growth rate? (Do not round intermediate calculations. Round final answer to one decimal place.)

Question

Quizplus · Accepted Answer

The internal growth rate (IGR) is calculated using the formula: IGR = (ROA * Retention Ratio) / (1 - ROA * Retention Ratio). First, calculate the Return on Assets (ROA) = Net Income / Total Assets = $1,212,335 / $12,522,788 = 0.0968 or 9.68%. The retention ratio is 70% or 0.70. Plug these into the IGR formula: IGR = (0.0968 * 0.70) / (1 - 0.0968 * 0.70) = 0.068 or 6.8%.

Swan Supply Company Has Net Income of $1,212,335 on Assets