Return on Asset x Retention ratio - Case Study Example

Internal growth rate= (Return on Asset x Retention ratio)/1-(Return on Asset x Retention ratio)
Return on Asset= 2,029,766/19,986,170=0.10
Retention ratio= 1-dividend pay-out; Dividend pay-out= 610,000/2,029,766=0.3
1-0.3=0.7
IGR= (0.1 X 0.3)/1-(0.1 X 0.3)
0.03/0.97=0.031
3.1%
Sustainable Growth Rate= (Net income/ Shareholder’s equity) x (1-retention ratio)
(2,029,766/11,435,815) x (1-0.7)
0.18 x 0.3=0.053
5.3%
Question two
Forecasted sales; 40,259,230(1 +0.12) = $ 45,090,338
EFN=Increase in asset-increase in liabilities-increase in retained earnings.
Increase in asset= 19,986,170 x .12=
Increase in liabilities= 8,550,000 x .12
Increase in retained earnings= 40,259,230(1+0.12) x x 0.7 Read More