Question

Flo's Flowers has annual sales of $61,888, depreciation of $8,100, interest paid of $970, cost of goods sold of $29,400, taxes of $4,918, and dividends paid of $4,810. The firm has total assets of $105,300 and total debt of $51,600. The firm does not want any additional external equity financing and also wants to maintain a constant debt-equity ratio. What rate of growth can this firm maintain

Answer 1

Answer:

0.1495 or 14.95

Explanation:

Net income = $61,888−$29,400

−8,100 −950 -$4,918

=$18,520 Net income

= Retention ratio = ($18,520−$4,810)/$18,520

Retention ratio = 0.74

Internal growth rate = [($18,520/$105,300)(.74)]/{1 −[($18,520/$105,300)(.74)]}

=0.1301/1-0.1301

=0.1301/0.8699

Internal growth rate = .1495 or 14.95%

Therefore rate of growth that this firm can maintain is .1495 or 14.95%