The most recent financial statements for Bello Co. are shown here:

The most recent financial statements for Bello Co. are shown here:

Income Statement				Balance Sheet
Sales	$	19,000		Current assets	$	11,720		Debt	$	15,760
Costs		12,880		Fixed assets		26,550		Equity		22,510
Taxable income	$	6,120		Total	$	38,270		Total	$	38,270
Taxes (21%)		1,285
Net income	$	4,835

Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 35 percent dividend payout ratio.

What is the internal growth rate? Explanation Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.   To calculate the internal growth rate, we first need to calculate the ROA, which is: ROA = NI/TA ROA = $4,835/$38,270 ROA = .1263, or 12.63% The plowback ratio, b, is one minus the payout ratio, so: b =  1 – .35 b =  .65 Now we can use the internal growth rate equation to get: Internal growth rate =  (ROA × b)/[1 – (ROA × b)] Internal growth rate =  [.1263(.65)]/[1 – .1263(.65)] Internal growth rate =  .0895, or 8.95%

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