Question

Asymmetric Frames Corp. had a return on equity of​ 15%. The​ corporation's earnings per share was​ $6.00, its dividend payout ratio was​ 40% and its profitminusretention rate was​ 60%. If these relationships​ continue, what will be United Financial​ Corp.'s internal growth​ rate?A.​8.6%B.​6.0%C.​15.6%D.​9.0%

Answer 1

Answer:

D. 9.0%

Explanation:

Provided return on equity = 15% = K$_e$

Earnings per share = $6.00

Dividend = 40% = $6 $\times$ 0.4 = $2.40

Internal Growth Rate = Cost of equity $\times$ (1 - Dividend payout ratio)

Putting values in above we have

Internal growth rate = 15% $\times$ (1 - 40%)

= 15% $\times$ 60%

= 9%

Therefore, correct option is

D. 9.0%