Last year a firm had a Return on Assets of 5% and a dividend payout ratio of 80%.
What is the internal growth rate? _________%
Solution
Given the following data:
1. Return on Assets = 5%.
2. Dividend payout ratio: 80%.
So, Retention Ratio = (1-Divident payout) = (1-80%) = 20%
Internal Growth Rate = (Return on Assets x Retention Ratio) / (1-Renturn on Assets x Retention
Ratio)
= (0.5 x0.2) / {(1 - (0.5 x0.2)}
= 0.1 /( 1 - 0.1)
= 0.1 / 0.9 = 0.1111
= 11.11%
Internal Growth Rate: 11.11%.
Last year a firm had a Return on Assets of 5 and a dividend payout .pdf
1. Last year a firm had a Return on Assets of 5% and a dividend payout ratio of 80%.
What is the internal growth rate? _________%
Solution
Given the following data:
1. Return on Assets = 5%.
2. Dividend payout ratio: 80%.
So, Retention Ratio = (1-Divident payout) = (1-80%) = 20%
Internal Growth Rate = (Return on Assets x Retention Ratio) / (1-Renturn on Assets x Retention
Ratio)
= (0.5 x0.2) / {(1 - (0.5 x0.2)}
= 0.1 /( 1 - 0.1)
= 0.1 / 0.9 = 0.1111
= 11.11%
Internal Growth Rate: 11.11%
