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Williams, Inc., has an ROA of 7.4 percent and a payout ratio of 25 percent.
What is its internal growth rate?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal growth rate %

Respuesta :

Answer:

5.88%

Explanation:

The computation of the internal growth rate is shown below:

= (Return on assets × b) ÷ (1 - Return on assets × b)

where,

b = Retention ratio

So, it would be calculated below

   = 1 - dividend payout ratio

   = 1 - 0.25

   = 0.75

Now the internal growth rate is

= (7.4% × 0.75) ÷ (1 - 7.4% × 0.75)

= (0.0555) ÷ (0.9445)

= 5.88%

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