Question

In: Finance

1. Based on the following numbers what was the maximum growth rate in sales without external...

1. Based on the following numbers what was the maximum growth rate in sales without external financing

Net Income 150 Dividends 40. Total Assets 2055

2. You are saving 2000 per month to accumulate 10000. If the interest is 6% per year compounded monthly how long have to save to achieve your goal?

Expert Solution

1) Internal growth rate shows growth rate without external financing.

IGR = [ Return on Asset * Retention ratio ] / [ 1 - ( Return on Asset * Retention ratio ) ]

ROA = Net Income / Total Assets

= 150 / 2055

= 7.30%

Retention Ratio = 1 - ( Dividend / Net income )

= 1 - ( 40 / 150 )

= 0.7333

IGR = [ Return on Asset * Retention ratio ] / [ 1 - ( Return on Asset * Retention ratio ) ]

= [ 0.0730 * 0.7333 ] / [ 1 - ( 0.0730 * 0.7333 ) ]

= 0.0535 / 0.9465

= 5.66 % Answer

2) Future Value = Annuity * PVAF ( Monthly rate, Number of Months )

10,000 = 2,000 * PVAF (6% / 12, Number of months )

10,000 = 2,000 * PVAF (0.50%, Number of months )

PVAF (0.50%, Number of months ) = 10000 / 2000

PVAF (0.50%, Number of months ) = 5

by trial and error

Number of months = 5.08 Months Answer

jeff jeffy answered 2 years ago

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