Meredith Inc. has a return on equity of 21.5 percent, an equity ratio of 55 percent, and a dividend payout ratio of 70 percent. What is the company's internal growth rate? (Round to two decimal places)

Question

Quizplus · Accepted Answer

The internal growth rate can be calculated using the formula: Internal Growth Rate = (ROE * (1 - Dividend Payout Ratio)) / (1 - (ROE * (1 - Dividend Payout Ratio))). Plugging in Meredith Inc.'s values: ROE = 21.5%, Dividend Payout Ratio = 70% or 0.7, we get Internal Growth Rate = (0.215 * (1 - 0.7)) / (1 - (0.215 * (1 - 0.7))) = 0.0355 or 3.55%.