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11 July, 02:31

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

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  1. 11 July, 04:19
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    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%
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