The most recent financial statements for Shinoda Manufacturing Co. are shown below: Income Statement Balance Sheet Sales $ 63,900 Current assets $ 26,500 Debt $ 42,700 Costs 44,830 Fixed assets 79,400 Equity 63,200 Taxable income $ 19,070 Total $ 105,900 Total $ 105,900 Tax (40%) 7,628 Net Income $ 11,442 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 40 percent dividend payout ratio. No external financing is possible. What is the internal growth rate

The internal growth rate is 6.93%

Explanation:

In order to calculate the internal growth rate we would have to calculate the following formula:

Internal growth rate = (ROA × b ) / [1 – (ROA × b )]

ROA =   Net income / Total assets

ROA =$11,442/$105,900=10.80%

plowback ratio =b = 1 – Payout ratio= 1-0.40=60%

Therefore, Internal growth rate = (10.80%*60%)/(1-(10.80%*60%))

Internal growth rate =6.93%

The internal growth rate is 6.93%

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