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If A7X Co. has an ROA of 13 percent and a payout ratio of 16 percent,...

If A7X Co. has an ROA of 13 percent and a payout ratio of 16 percent, what is its internal growth rate?

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Expert Solution

Internal growth rate = (ROA * Retention ratio) / (1 - ROA * Retention ratio)

ROA = 13%

Retention ratio = 1 - Dividend payout ratio

= 1 - 16%

= 84%

Internal growth rate = (0.13 * 0.84)/(1 - 0.13*0.84)

= 12.26%

jeff jeffy answered 2 years ago
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