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In: Finance

The most recent financial statements for Live Co. are shown here:   Income Statement Balance Sheet   Sales...

The most recent financial statements for Live Co. are shown here:
  Income Statement Balance Sheet
  Sales $3,900       Current assets $4,145     Debt $8,288  
  Costs

2,574    

   Fixed assets 10,149     Equity 6,006  
  Taxable income $1,326         Total

$14,294  

   Total

$14,294  
  Taxes (35%) 464    
    Net income

$862    
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 26 percent dividend payout ratio. No external equity financing is possible.
Required:
What is the internal growth rate? (Do not round your intermediate calculations.)


Multiple Choice

  • 4.57%

  • 1.59%

  • 4.67%

  • 4.77%

  • 11.88%

Solutions

Expert Solution

Internal Growth Rate = Return on Assets * Retention Ratio

Return on Assets = Net Income/ Total Assets = 862/14,294 = 6.03%

Retention Ratio = 1-Dividend payout ratio = 1-26%=74%

IRR = 6.03*0.74 = 4.47%

jeff jeffy answered 2 years ago
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