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Using the information in the following table, calculate this company's: Net Income 50,000 Beginning Total Assets 400,000 Beginning Stockholder's Equity 250,000 Payout Ratio 0% Internal growth rate
Using the information in the following table, calculate this company's:
Net Income
50,000
Beginning Total Assets
400,000
Beginning Stockholder's Equity
250,000
Payout Ratio
0%
- Internal growth rate.
- Sustainable growth rate.
- Sustainable growth rate if it pays out 40% of its net income as a dividend.
Expert Solution
a.)
Internal growth rate = Return on asset * (1-payout ratio)
= (50000/400000)*1
= 5/40
= 12.50%
b.)
Sustainable growth rate = return on equity*(1-payout ratio)
= (50000/250000)*1
= 20%
c.)
Sustainable growth rate if payout is 40% = (50000/250000)*(1-0.4)
= 0.2*0.6
= 0.12 or 12%
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