Cold Ice has a profit margin of 8.3 percent and a payout ratio of 42 percent. The firm has annual sales of $386,400, current liabilities of $37,200, long-term debt of $123,800, and net working capital of $16,700, and net fixed assets of $391,500. No external equity financing is possible. What is the internal growth rate?

Question

Kiersten Bradley

Business

24 February, 14:15

Cold Ice has a profit margin of 8.3 percent and a payout ratio of 42 percent. The firm has annual sales of $386,400, current liabilities of $37,200, long-term debt of $123,800, and net working capital of $16,700, and net fixed assets of $391,500. No external equity financing is possible. What is the internal growth rate?

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Answers (1)

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Branden Lamb · Answer 1

The internal growth rate is 4.36%

Explanation:

net income = 8.3%*386,400

= $32,071.20

net working capital = current assets - current liabilities

current assets - 37200 = 16700

= $53,900

total assets = current assets + net fixed assets

= 53,900 + 391,500

= 445,400

Then:

ROA = 53,900/445400

= 0.072005

b = 1 - 48% = 0.52

internal growth rate = 0.072005*0.52/1 - (0.072005*0.52)

= 0.041763/0.958237

= 4.36%

Therefore, The internal growth rate is 4.36%