The most recent financial statements for Shinoda Manufacturing Co. are shown below: Income Statement Balance Sheet Sales $ 63,600 Current assets $ 25,000 Debt $ 41,200 Costs 44,980 Fixed assets 77,900 Equity 61,700 Taxable income $ 18,620 Total $ 102,900 Total $ 102,900 Tax (35%) 6,517 Net Income $ 12,103 Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 37 percent dividend payout ratio. No external financing is possible. Required: What is the internal growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Internal growth rate % Explanation: To calculate the internal growth rate, we need to find the ROA and the plowback ratio. The ROA for the company is: ROA = Net income / Total assets ROA = $12,103 / $102,900 ROA = .1176 or 11.76% And the plowback ratio is: b = 1 – Payout ratio b = 1 – .37 b = .63 Now, we can use the internal growth rate equation to find: Internal growth rate = [(ROA)(b)] / [1 – (ROA)(b)] Internal growth rate = [.1176(.63)] / [1 – .1176(.63)] Internal growth rate = .0800, or 8.00%

The most recent financial statements for Shinoda Manufacturing Co. are shown below:

Income Statement			Balance Sheet
Sales	$	63,600	Current assets	$	25,000	Debt	$	41,200
Costs		44,980	Fixed assets		77,900	Equity		61,700
Taxable income	$	18,620	Total	$	102,900	Total	$	102,900
Tax (35%)		6,517
Net Income	$	12,103

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 37 percent dividend payout ratio. No external financing is possible.

Required:

What is the internal growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Internal growth rate

%

Explanation:

To calculate the internal growth rate, we need to find the ROA and the plowback ratio. The ROA for the company is:

ROA	=	Net income / Total assets
ROA	=	$12,103 / $102,900
ROA	=	.1176 or 11.76%

And the plowback ratio is:

b = 1 – Payout ratio

b = 1 – .37

b = .63

Now, we can use the internal growth rate equation to find:

Internal growth rate	=	[(ROA)(b)] / [1 – (ROA)(b)]
Internal growth rate	=	[.1176(.63)] / [1 – .1176(.63)]
Internal growth rate	=	.0800, or 8.00%