The internal growth rate of Bestbuy is 30%. The profit margin is 20% and the asset...

The internal growth rate of Bestbuy is 30%. The profit margin is 20% and the asset turnover is 2. What is the payout ratio?

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Expert Solution

The payout ratio is computed as follows:

Internal growth rate = (ROA x b) / (1 - ROA x b)

ROA is computed as follows:

= Profit margin x Asset turnover

= 0.20 x 2

= 0.40

0.30 = (0.40 x b) / (1 - 0.40 x b)

0.30 - 0.12 b = 0.40 b

0.30 = 0.52 b

b = 0.576923077

So, the payout ratio will be as follows:

= 1 - b

= 1 - 0.576923077

= 42.31% Approximately

Feel free to ask in case of any query relating to this question

jeff jeffy answered 2 years ago

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